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Comfortable with NPA clean-up so far, says Rajan

RBI Governor at ASSOCHAM event

Mumbai : Reserve Bank Governor Raghuram Rajan today said he is comfortable with the stressed assets recognition process undertaken by the banks in the process of cleaning up their balance sheets.

“Broadly speaking we are comfortable with the recognition process that banks have certainly taken. Some banks have taken more steps than we required them to take. So, the culture of cleaning up (of balance sheet) seems to be well embedded as well as a culture of recovery on some of the loans,” Rajan, who will be demitting office on September 4, told reporters during his last post policy meeting with the reporters.

Incidentally, this would be the last monetary policy meeting by the governor as the next policy will be by the Monetary Policy Committee, which will have three nominated members from the government and an equal number from the Reserve Bank including the Governor.

In the December monetary policy statement, Rajan had set a deadline of March 2017 for banks to clean up their balance sheets.

“I want to put something like March 2017 on the table as when we hope that a full clean-up will have been done,” Rajan had said.

In the December and January quarters of the past fiscal year, the RBI had given a list of 130 top stressed accounts to banks and asked them to label these accounts as NPAs and to make additional provisions for them.

After the asset quality review or the AQR for short, the banks’ gross non-performing assets sharply jumped to 7.6 per cent in March 2016 from 5.1 per cent in September 2015.

The Governor further said the banks now need to find out ways to restructure some of the large NPA accounts which would make them healthy for a longer period.

“What remains is for some of these large stressed projects to figure out the way to restructure them in a way that makes sense for the longer term health of the system and the health of the projects,” he said.

Rajan said the attitude of banks towards schemes like 5:25 refinance, strategic debt restructuring and S4A scheme has been changing for the good.

“The earlier attitude was – this is the way to postpone recognition. That is no longer there. Now the question is: is this the way to effect resolution? The schemes are now look at with new eyes,” he said.

The Governor further said he hopes that as the economic recovery assumes speed, some of the stressed assets would be put back on track and there will also be more buying interest in some of the other assets which have the possibility of the new ownership.

The Governor said at this point banks have enough tools to deal with NPAs, but the real issue is to use them and the RBI is working with the lenders to make sure that any impediments are rectified.

“Again and again we emphasise we don’t want to go back to the old days of forbearance. The banks have to use these tools in an effective way and these schemes have to be structured in such way that there are no implications of forbearance,” he said.

When asked if he fears that there could be backtracking on some of the restructuring steps which he has announced when he leaves of Mint Road, Rajan said there is no need to assume it.

“I don’t see why that should be assumed that there would be any backtracking. I think the path is clear and there has been substantial cooperation all along the way between the government and the RBI on this.”

“The bank know what needs to be done, the promoters know what needs to be done and therefore I would think it is a process of doing it as opposed to backtracking,” he said.

On the NPAs, Deputy Governor S S Mundra said, there is no need to have a re-look at the road map of March 2017 for cleaning up of balance sheets.

“Overall, if you look at the percentage of stressed assets, there is no significant elevation. Also, there is a clear deceleration in the the pace of generation of new bad loans,” he said.

Mundra said the provisioning requirement for banks would continue to enhance as in the remaining three quarters some more assets moves within the bracket and also due to the aging effect.

“I think the overall movement of the banks in that (NPAs resolution) direction is getting more sure-footed, if not that any definite resolution is on the cards, but clarity is much greater than what it was when we embarked on this path,” Mundra said.

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