Asserting that the level of bad loans is not alarming,Governor Raghuram Rajan today said the Reserve Bank has come out with a discussion paper on stressed asset management to prevent any further threat to the system and revive units that have the potential to generate revenue.
“The level of NPAs (non-performing assets) and restructured loans is not alarming at this point in time,but it is something we want to take action on quickly before it gets to the point that it is alarming,” Rajan told reporters a day after the RBI came out with a discussion paper on NPA management for banks.
He said some accounts can be revived by rescheduling loans,which the RBI envisages to do once the norms get finalised after the public discussion.
“In the long-run,some of the bad assets can produce revenues once they get the clearances. We need to put them back on track and so the sequence of objectives is to put the bad assets back on track,get recovery for banks and be fair to entrepreneurs who have taken risks,” he said.
Such arrangements will also help sagging growth as assets start delivering,he said at a media briefing after the Mid-Quarter Monetary Policy Review,which left all key rates unchanged.
The mid-quarter review was started by Rajan’s predecessor,D Subbarao,who never briefed the media on such occasions. Rajan had a press briefing at his first mid-quarter review,which came a fortnight after he took over.
Projects worth over Rs 17 trillion are stuck for want of clearances or are at various stages of development. Some of these projects have even attained financial closure or have already availed of bank funds.
Asked whether the RBI believes in the private data on NPAs and whether the central bank has any different set of numbers,Rajan answered in the negative.
“How large is the size of the loan problem and whether we know significantly more than what we are reacting to,the answer is no. What you see out there is what we are reacting to and believe that the level of NPAs and restructured loans is not alarming,” the Governor said.
Gross NPAs of banks crossed 4 per cent in the September quarter at Rs 2.37 trillion and are projected to exceed 4.4 per cent,or Rs 2.9 trillion,by the end of the financial year,according to a report by rating agency Icra,an associate of Moody’s Investors Service.
Most NPAs are generated by state-run banks. United Bank of India has an NPA level of over 7 per cent,while for State Bank of India,it is more than 5 per cent.
The gross NPAs of the 26 public sector banks are set to touch 4.8 to 5 per cent by the end of this financial year at Rs 2.6 trillion. In March,this was 3.6 per cent,or Rs 1.64 trillion,while they were at 4.5 per cent,or Rs 2.14 trillion,in the second quarter,as per Icra data.
As the bad loan pile mounts,so is the recasting of debt. As of the September quarter,the CDR books stood at Rs 2.72 trillion out of the Rs 3.62 trillion that came for restructuring,according to Icra data.
While Rs 1.96 trillion worth of loans are live under CDR (corporate debt restructuring) as of the September quarter,at the end of the period,Rs 0.51 trillion worth of restructured loans came out of the CDR mechanism.
The RBI’s discussion paper yesterday offered a carrot and stick approach to tackle the crisis.
The discussion paper pitched for early action by banks to jointly tackle the problem and penalise borrowers not cooperating in rescue efforts.
The paper called for “early formation of a lenders’ committee with timelines to agree to a plan for resolution,and penalising wilfully or uncooperative defaulters” among others.