NPA clean-up should have started much earlier: Rajan

Rajan said however that the scourge of loan losses "had a tendency to increase, get too big to ignore, too late to manage, and push the system into crisis".

By: PTI | Mumbai | Published: July 26, 2016 6:50 pm
RBI, Raghuram Rajan, Raghuram Rajan NPA, Rajan NPAs, Rajan bad loans, Outgoing Reserve Bank of India (RBI) Governor Raghuram Rajan.

Outgoing RBI Governor Raghuram Rajan, who has ruffled industry for his strident bid to get the bank balance-sheets cleaned up, today admitted that the central bank should have carried out this exercise earlier. “As with inflation, it was the duty of the central bank to press for bank clean-up earlier, when few among the public support the central bank’s activism,” he said, addressing the 10th Statistics Day conference at the RBI headquarters here.

He also said the lenders were initially reluctant to implement the clean-up which started from December 2015 with RBI identifying 150 largest accounts which were facing problems in servicing their debt obligations. “Fortunately, after an initial reluctance, banks have entered the spirit of the clean-up and some have gone beyond what was demanded of them,” he said, adding that it was “easy to ignore” the problem of loan losses hoping that it goes away “somehow”.

Rajan said however that the scourge of loan losses “had a tendency to increase, get too big to ignore, too late to manage, and push the system into crisis”. In late 2015, RBI came out with a list of over 150 accounts, which was pruned to 120 later, and asked all the lenders to recognise their exposures to those as non-performing assets or bad loans.

It gave banks two quarters to recognise the losses and according to some estimates, the banks have taken a hit of Rs 70,000 crore to cover for the reverses. Following this clean-up order, the banks, led by state-run ones, have reported close to 14 per cent or over Rs 8 trillion (Rs 8 lakh crore) of their assets as stressed as of March 2016, while NPAs alone crossed 7.6 per cent.

The Reserve Bank had last month warned in the financial stability report that the NPA pains might worsen and that it would cross 8.5 per cent by March 2017 under its base case scenario.

For all the latest Business News, download Indian Express App

  1. Janardhan Rao
    Jul 26, 2016 at 2:52 pm
    So Rajan admits he failed to perform his duties fully.
    1. Y
      Jul 27, 2016 at 1:55 am
      CLEANSING OF NPA is not going to resolve anything in Banking Sector. We have to understand the main reason and NPA and then we should try to talk out for balance_sheet or this _that. There are two reason for NPA (i) Genuine (ii)Non_ Genuinelt;br/gt;lt;br/gt;Genuine Reason : lt;br/gt;(1)Borrower is honest to work (2)Lender is honest to advance (iii) borrower could not succeed in his business due to some change in the business environment; may be the thing is not in demand for which the loan was given. This is not the only the failure borrower but also of lender, Banker could not evaluate the future of business; may reasons and solutions; I don’t want to go in details for genuine reasonslt;br/gt;lt;br/gt;Non_ Genuine: The alarming thing is dishonesty since beginning from both parts where borrower and lender both things this is not their money so misuse as much you;br/gt;Bankers are also the part of society hence they are two types (i) One Greed of money (ii) Greed of;br/gt;(a) If Banker accept the commission from borrower then 99% accounts account becomes NPA on the SPOTlt;br/gt;(b) Some Bankers do not take money; but when their corrupt Boss pressurizes to give advance to non-genuine person for the sake of their promotion they get themselves in the world of corruption. This situation is alarming control is required by thoroughly checking the promotion process of Bankers as this makes the root of advance ie. The honest person;br/gt;(c) Government should also inquire the involvement of their office people who are approaching the Banks for promotion of incapable/dishonest person due to various;br/gt;(d) Make the lending/deposit rate same for all Banks so that only service and honesty can matter while sanctioning fresh;br/gt;lt;br/gt;I n short I want to say that don’t make people NPA. Be honest and evaluative while sanctioning the new advance. Be honest while recovering the amount from NPA accounts. Be honest in internal promotion Process. I firm believe only honesty can remove the NPA. Keep your eye fresh advance.