Rising Bad loan: RBI to strengthen stressed assets resolution procedure

‘Oversight committee can be enlarged... also looking at JLF mechanism’

By: ENS Economic Bureau | Mumbai | Published:March 24, 2017 2:02 am
Pre-paid Payment Instruments, RBI on Pre-paid Payment Instruments, Central bank on Pre-paid Payment Instruments, Pre-paid Payment Instruments limit, indian express news The Reserve Bank of India (File Photo)

The Reserve Bank of India (RBI) is looking at ways to strengthen the joint lenders’ forum (JLF) and oversight committee (OC) mechanisms in order to resolve stressed assets.

“I think the discussion is coming around whether we need to provide more strength to the processes and whether the institution of oversight committee can be further enlarged or strengthened and we are also looking at the JLF mechanism,” RBI Deputy Governor SS Mundra said on Thursday.

According to him, a variety of stressed loans will need to use different instruments. “There is nothing like a one umbrella solution for everything. If you look at it ultimately, bankers should come together, decide and decisions should be adopted by all very quickly where the resultant valuation should be transparent,” he said. In cases where banks have to take a haircut, it would entail capital requirement, following which variety of resolution instruments available are to be utilised, he said. “That is where the industry needs to move, that is what we are discussing,” Mundra said.

Asked if the March 31 balance sheet cleanup deadline will remain unchanged, Mundra said “it holds very much” and there is no question of banks failing to meet it since it was being monitored every quarter. He said that during meetings with finance ministry, on one occasion 20 top NPAs were discussed, while another time 50 top NPAs were discussed. “These are initial phases… once we reach a definitive stage, then all the other things will come including the timeline,” he explained and added that even in the recent past there has been an active engagement between the RBI, the government and all the other stakeholders on stressed assets.

According to Capitaline data, the total bad loans of 41 banks stood at Rs 7 lakh crore in the December quarter of FY17, up 60 per cent from the year-ago period. In Q2 FY17, gross NPAs of the same set of banks stood at Rs 6.74 lakh crore. According to RBI’s Financial Stability Report, the gross NPA ratio climbed to 9.1 per cent in September, 2016 from 5.1 per cent in September 2015.

Meanwhile, RBI stress resolution measure like strategic debt restructuring (SDR) and scheme for sustainable structuring of stressed assets (S4A) have failed to make any significant impact. While banks have tried converting debt into equity through SDR in close to two dozen firms with debt of close to Rs 1.5 lakh crore, they have been unable to find a buyer for any of those stressed assets. Similarly, even S4A has failed to take off with the oversight committee (OC) having cleared only a handful of cases till date.

The RBI had said possibly up to a sixth of public sector banks’ gross advances are stressed, and a significant majority of these are in fact NPAs. For banks in the worst shape, the share of assets under stress has approached or exceeded 20 per cent. This estimate of stressed assets has doubled from 2013 in terms of what had been recognised by banks. The doubling of stressed assets is the case for private banks too.

Sectors with the most stressed assets have excess capacity relative to current or near-term utilisation and no sight of immediate pickup in economic prospects. Promoters have continued to operate, staying afloat with rollovers from banks which only increase indebtedness.

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