Reserve Bank Governor Raghuram Rajan has said banks which are saddled with huge non-performing assets would be able to clean up their balance sheets by March 2017.
“The first part of the process was to give more powers and flexibility to deal with it. The idea is to put the real assets back on track with whatever needs to be done. The first step was with things like 5/25 and SDR with bringing in new promoters… a whole range of steps have been taken. Given that banks have more powers, we can now be a little more careful about recognition, and the first step of that was to do away with the forbearance starting April 1, 2015,” he said.
“The next step is to make sure that what should be classified as ‘A’ is classified as ‘A’ and not ‘B’, and we are in constant dialogue with banks. We are also looking at how some of these existing facilities have been used to make sure that we are not kicking the can down the road,” Rajan said. As many as 37 banks reported a 26.8 per cent rise in non-performing assets (NPAs) to Rs 336,685 crore in the 12 month-period ended September this year as compared to a growth of 16.9 per cent a year ago. Stressed assets (gross NPAs and restructured loans) amount to Rs 7,50,000 crore. “They would be able to bring this (stressed assets) down, not just by provisioning but also by putting some of these back on track so that they can be elevated back to performing assets,” Rajan said.
“This is what’s under way. It’s for both public sector and private banks.
More of the problem is with public sector banks because they were into infrastructure investment.” “We hope that over the span of next year, say by March 2017 as when we hope that a clean-up will have been done by banks,” he said. “We are in constant dialogue with banks on a number of issues, including the assets on their balance sheets and we are talking to them about what is being done under the 5:25 scheme, and others. We have given a number of facilities to banks to improve their asset quality,” he said.
He said the RBI and the government are very concerned over bad loans and expressed hope that “going forward these additional powers as well as the additional recognition that the banks will be doing will clean up the balance sheet in a significant way so that banks would be in a position to grow and lend.
Reserve Bank Governor on other Issues
Base rate calculation norms soon: The RBI will shortly announce a new methodology for determining the base rate taking into account the marginal cost of funds to ensure that banks pass on policy rate cuts to borrowers.
Pay Commission impact: Rajan said the hike in pay of Central employees will not upset the fiscal maths as additional expenditure will be offset by either surplus revenues or cut in spending.
Chinese yuan and rupee: The inclusion of the yuan in the International Monetary Fund’s special drawing rights basket could lead to more devaluation of the Chinese currency, Rajan said. India does not intend to “manipulate” the exchange rate for the rupee to achieve macroeconomic objectives, he added. ENS