Need stronger bank balance sheets to tackle NPAs: RBI Deputy Governor
Non-performing assets have been a continuous headache for banks, especially state-owned lenders, with a number of large corporate loans turning bad in the last few years
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Reserve Bank of India Deputy Governor N S Vishwanathan today (13 October) stressed on the need to strengthen the balance sheets of banks to deal with the "serious concern" of stressed assets.
Non-performing assets have been a continuous headache for banks, especially state-owned lenders, with a number of large corporate loans turning bad in the last few years.
"Stressed assets of the banks is a matter of serious concern. Particularly with the public-sector banks. There is a need to make the balance sheets of banks stronger," Vishwanathan said at an interaction organised by the Merchants' Chamber of Commerce and Industry.
Quoting another RBI deputy governor Viral Acharya's findings, he said there was a strong correlation between credit growth and balance sheets of banks.
"As on March 2017, gross NPAs of the banks was 10 per cent of the total exposure, mostly in the public sector. Strong balance sheets helps deal with stressed assets," he said.
For ongoing projects which are not found to be viable in the initial phases, Vishwanathan said sub-optimal restructuring was an answer to this problem.
Regarding the 12 stressed accounts which had been referred to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, he said required provisioning for those NPA accounts was "nothing unusually large".
The RBI deputy governor said a strong insolvency regime would help banks improve their credit rating, and assist the banking sector to stand on a firm footing.
Referring to the transmission of monetary policy to consumers, he said an RBI panel had found that the external benchmarking rate was more transparent than the existing marginal cost of funds based lending rate (MCLR) and the previous benchmark lending rate.
"Competition in the market would be the determining factor in determination of lending rates," he said.
On statutory liquidity ratio (SLR), Vishwanathan said India was having its own provisioning mechanism in addition to the newly-introduced liquidity coverage ratio (LCR).
As per regulations, he said banks are required to maintain both LCR and SLR concurrently, adding, an abrupt reduction in the latter could affect lenders as yields would rise and subsequently bring down the value of securities held.
Commenting on shadow banking, Vishwanathan said there has been a move globally to map them. "But fortunately, the shadow banking space in India is not that big."
In case of borrowings by large corporates, the present global practice is to raise 50 per cent of the funds from the market, the RBI official added.
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