Interview with Ashwani Kumar: ‘Pain in banking may continue for one-two more quarters’

When you talk about non-performing assets, you should understand how NPAs were created in the system. Once the economy starts picking up, for which the signs are very strong, banks will come out of the stressed asset problem. The government and the Reserve Bank have taken several measures. These measures differentiate between borrowers having genuine problem and wilful defaulters and they are aimed at providing support to borrowers having genuine reasons for stress. In the case of wilful defaulters, banks are now very aggressive on the recovery front. Sector specific measures are also initiated to bring them on the path of recovery. Take the case of road and power sectors where the government has taken measures to debottleneck the issues involved. I think the pain will continue for one or two more quarters and it will vary from bank to bank based on their exposure to stressed borrowers and sectors. In the case of genuine borrowers, they are monitoring stressed assets closely to resolve various issues and giving support. I am sure that if genuine borrowers are supported, they will shortly come out.

Are banks empowered to tackle the situation?

Major issues are getting sorted out. Mining regulations are cleared. Parliament has passed the Insolvency Act. Bills to amend DRT (debt recovery tribunal) and Sarfaesi Acts were cleared by the Lok Sabha. We should be able to see an improvement in the next one or two quarters. If you want to see total robustness to come in, it may take some time.

Are various schemes announced by the RBI to tackle NPAs working?

When an account is under stress and the stress is genuine, you will have to support the asset. Schemes like refinancing of project loans, 5/25 scheme, strategic debt restructuring and scheme for sustainable structuring of stressed assets (S4A) were formulated to support genuine assets. Such schemes support viable assets which got into trouble for various reasons and banks are using the options based on suitability. The joint lenders forum (JLF) is working. Well, the above measures are only for the purpose of supporting genuine borrowers and support the industry to survive.

Despite a big rise in NPAs, why do you think asset sales to asset reconstruction companies declined last year?

Asset sales to asset reconstruction companies have come down mainly because ARCs will have to pay minimum 15 per cent cash upfront. On the other hand, they have capital adequacy challenges. ARCs are now allowed to go for 100 per cent foreign direct investment (FDI). Once the capital comes, the situation will be better.

Wilful defaults and diversion of bank funds seem to have gone up. Is it a cause for concern?

The percentage of wilful defaults is not very high. Of course, there are some cases of wilful defaults. But it’s not an alarming situation. I’m not saying people haven’t diverted funds. Some have diverted funds but the percentage is not high and in all such cases of wilful default, banks are taking aggressive steps for recovery including filing of cases with law enforcement agencies.

Credit offtake has plummeted this year … when can we see banks lending more?
Credit offtake is based on demand and ultimately based on the economy picking up. The government has announced many measures. People have started making enquiries. Some positive signals are visible. There’s good demand in the retail sector. We are lending wherever there is demand. With good monsoon this year, consumption, especially in the rural areas, is expected to pick up which will stimulate demand for credit. Further, implementation of the seventh Pay Commission report will also boost demand. The year 2017-18 will be a good one.

Do you think time is ripe for bank consolidation?

Banks are grappling with the NPA issue now … consolidation in the banking sector can be taken up at an appropriate time. In consolidation, human resources is a big factor. They should be on board. Banks have different IT platforms and geographical locations of branches … there are a number of issues that will have to be considered.

With more private banks, payment and small finance banks set to enter the sector, do you think PSU banks will find the going tough?

If you look at the banking sector, competition brings the best out of you. When private sector banks entered, there were improvements in customer services and the sector witnessed launching of new products. Competition brings improvement and prove to be beneficial to both the banks and customers. New competition will bring better customer services and products. I think it will be more of collaboration. For example, payment banks and large banks can collaborate and leverage on their strengths. Competition is always good for customers.

Are banks prepared to go digital in a big way?

Banks are gearing up for the digital revolution — whether it’s UPI (unified interface protocol), mobile banking, internet banking or Bharat Bill Payment System. All the banks are trying to shift the customers to the digital platform. We are campaigning to bring more customers to the mobile and internet banking segment. However, one area where banks need to be careful is cyber security. Banks will have to put in robust systems to take care of cyber security.