Reserve Bank of India (RBI) Governor Urjit Patel on Saturday said that the government and the central bank are in dialogue to prepare “a packet of measures” for recapitalisation of public sector banks (PSBs), to help them resolve the issue of non-performing assets (NPAs) or bad loans in a “time-bound manner”.
Patel, who was speaking here at a Confederation of Indian Industry (CII) conference on Insolvency and Bankruptcy Code (IBC), said the success and credibility of all the resolution efforts would be critically contingent on the strength of PSBs balance sheets to absorb the costs.
“It is clear that PSBs will need to take haircuts on current exposures under any resolution plan agreed within or outside the IBC. Higher provisioning requirements on this count as well as other factors will affect the capital position of several banks. This would necessitate a higher re-capitalisation of these banks. The government and the RBI are in dialogue to prepare a packet of measure to enable the PSBs to shore-up the requisite capital in a time-bound manner,” said Patel.
Patel said the measures could include a combination of capital raising from the market, dilution of government holding, additional capital infusion by the government, merger based on strategic decision and sale of non-core assets.
“Gross NPA ratio of the banking system at 9.6 per cent and stressed advances ratio at 12 per cent as of March 2017 on the back of persistently high ratio in the past few years, is indeed a matter of concern,” said Patel.
The RBI chief said as much as 86.5 per cent of GNPAs are accounted by large borrowers.
“Swift time-bound resolution or liquidation of stressed assets will be critical for delogging the balance sheet and for efficient reallocation of bank capital,” said Patel.
The government and the RBI are working together to comprehensively address the issue through a multi-pronged approach, he added.
Patel also blamed lenders for the mess, saying their poor credit appraisal systems have led to the pile of bad loans, which tops over Rs 9 lakh crore now.