RBI Governor Raghuram Rajan has made it clear that cleaning up of balance sheets of public sector banks would continue to put them back on track while voicing concerns on banks taking a majority stake in stressed assets funds.
“We are working with the government on facilitating the process. There are discussions on mechanisms that will leave projects with appropriate capital structures and access to credit, as well as some incentive for promoters to earn their way out of difficulty. Sebi is also being consulted,” Rajan said.
Rajan said there were discussions on setting up stressed asset funds, but ruled out any concessions to overlook the problems of bad debt. “There is also a discussion of various funds to invest in stressed situations. However, there is no intent to go back to the days of forbearance or reverse the move towards transparent bank balance sheets.”
The RBI Governor is against banks taking majority stake in stressed asset funds. “In our view, majority ownership by banks is probably not wise or warranted. Perhaps, some form of minority ownership with a number of other players coming in, in addition to the government, to provide capacity, especially in management of stressed assets would be appropriate,” Rajan said.
On whether he would be comfortable with the idea of stressed assets funds, Rajan said: “The issue is not for me to be comfortable. The issue is for banks to be comfortable in selling at that price and for the stressed assets funds to pay a price which it thinks is appropriate. Meeting of the two is a big issue which needs to be resolved.”
Gross NPAs of lenders have surged by a Rs 241,000 crore in just six months — December and March quarters of FY16 — mostly due to the aggressive provisioning undertaken by PSU banks at the behest of the RBI. As a result, gross NPAs have gone up from Rs 349,113 crore in September 2015 to Rs 590,772 crore by March 2016. PSU banks also posted losses of close to Rs 25,000 crore in the fourth quarter due to higher NPA provisioning. “Banks focussed on deeply stressed in the last two quarters. Other stressed assets will be taken up now,” he said.