RBI’s liquidity tightening threatens to take toll on banks’ asset qualityhttps://indianexpress.com/article/news-archive/print/rbis-liquidity-tightening-threatens-to-take-toll-on-banks-asset-quality/

RBI’s liquidity tightening threatens to take toll on banks’ asset quality

Measures come just when banks were seeing results in crack down on bad loans

The Reserve Bank of India’s recent liquidity tightening measures,which threaten to take a fresh toll on banks’ asset quality,come at a time when commercial banks led by the public sector brigade were beginning to see visible results in their crack down on runaway non-performing loans.

For instance,Bank of Baroda’s “rigorous flow up” of all non-performing accounts and timely response to early warning signals resulted in cash recovery of Rs 625.57 crore in the fiscal ending March 2013,according to chairman and managing director SS Mundra.

The bank also recovered Rs 352 crore from the prudentially written-off accounts,enabling Bank of Baroda to restrict its gross NPAs to 2.4 per cent and net NPAs to 1.28 per cent during 2012-13 — the lowest level in the large-sized PSU bank segment.

According to Indian Overseas Bank chief M Narendra,the bank has made “significant” cash recovery and upgradation of Rs 1,755 crore in NPA accounts during 2012-13,attributed largely to the bank’s crackdown on bad loans through a specialised asset management recovery branches (ARMBs) to improve the recovery of NPA accounts.

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The country’s second largest state-owned lender,Punjab National Bank,which set up 17 asset recovery management branches and 34 special asset recovery cells for exclusively resolving NPAs,managed to leverage its risk management machinery to sustain the quality of assets. The bank,according to chairman and managing director KR Kamath,managed to contain the level of NPAs from the third quarter on. Outstanding gross NPAs of the bank,as on March 31,2013,stood at Rs 13,466 crore.

Bank of India’s gross NPA levels dropped sharply from 3.42 per cent in September 2012 to 2.99 per cent on March 31,2013. Apart from “vigorous follow up and recovery of NPA accounts”,the bank,according to CMD VR Iyer,has also stepped up credit monitoring system for prevention of slippages and speedy monitoring of advances.

Corporation Bank,too,has seen NPA cash recovery and upgradation to the extent of Rs 1,509.30 crore in the fiscal ending March 2013,as against Rs 758.60 crore in the previous fiscal,a jump of 99 per cent.

The RBI,in its Financial Stability Report issued on June 28,had,however,noted that bad loans after making provisions for net non-performing assets rose 51 per cent to Rs 92,825 crore for 201-13 for listed banks. This is despite almost 6 to 7 per cent of total loans having been restructured. 

Among the banks that managed to cut down on bad assets,Union Bank of India said it was able to reduce gross non-performing assets from 3.01 per cent of gross advances as on March 31,2012 to 2.98 per cent as on March 31,2013.

On a quarterly basis,chairman and managing

director D Sarkar said in a statement to shareholders,the bank was also able to record a reduction in gross NPAs in absolute amount as well as a ratio of gross advances.

In case of UCO Bank,while gross NPAs increased during the financial year,recovery efforts resulted in a 25.8 per cent increase in cash recovery that touched Rs 828 crore.