‘Arrest slippages to limit NPAs’ 


Hyderabad: Banking sector has been going through tough times over the past few years. One of the prime bottlenecks for the growth of the sector has been burgeoning bad loans (non-performing assets (NPAs)), which is around Rs 10 lakh crores, during the end of last fiscal. The RBI’s stress tests done on public sector banks reveal that the gross NPA ratio may rise from 12.7 per cent in September 2019 to 13.2 per cent by September 2020 while that of private sector banks is expected to see an increase from 3.9 per cent to 4.2 per cent.

Government has admitted that there are 9,331 wilful defaulters in the country who owe Rs 1.22 lakh crores to the banks, which reveals the magnitude of the problem.

Explaining the scenario, C H Venkatachalam, general secretary, All India Bank Employees Association (AIBEA), told Telangana Today, “The real problem in the banks is the mounting bad loans. No action has been taken to recover these bad loans. We have been demanding that wilful default should be declared as a criminal offence and criminal action should be taken against such defaulters. But all types of concessions are being given to them.”

Insolvency process  

“Moreover, the Insolvency and Bankruptcy Code (IBC) is a retrograde scheme. In the name of IBC, corporate defaulters are relieved of their huge obligation to the banks and these bad loans are sold to other corporates at cheap rates. Banks are losing in the process,” he added.

Cases referred for recovery under various mechanisms went up by over 27 per cent in volume and tripled in value during 2018-19, leading to a pile-up of bankruptcy proceedings.

PSBs had taken higher exposure in some of the critical sectors of the economy such as mining, iron & steel, and infrastructure.

Risk projection

The central bank has cautioned that the asset quality of scheduled commercial banks (SCB) may deteriorate next fiscal owing to changes in the macroeconomic conditions. With an increase in slippages and declining credit growth , bad loans of scheduled commercial banks as a percentage of total loans is expected to go up from 9.3 per cent in September 2019 to 9.9 per cent by September 2020.

Venkatachalam observes, “From Rs 10 lakh crore bad loan level, the quantum of bad loans money-wise will go up by March 2020, while the GNPA ratio growth could go down as banks are pushing for loans. The IBC resolution is being hurried, where certain portion of bad loans will be knocked off from the list of NPAs, sacrificing a lot of money. Ultimately, the negative impact of bad loans on economy will go up. Also, the RBI’s ‘surplus’ is a notional surplus. The central bank is a risk cushioner, which is being exposed, putting it under risk. May be its time someone should put RBI under Prompt Corrective Action.”

Capital infusion

Institute for Advanced Studies in Complex Choices (IASCC) co-founder Anil K Sood said, “Given that the NPA problem has persisted for a long time, RBI will need to be a little unconventional in its approach. One of the problems is that we are continuing to get surprised about the level of NPAs in the financial system. We still continue to see banks showing large divergence in their estimate of NPAs and what RBI finds during its review. RBI’s Department of Economic Analysis and Policy should be able to anticipate the level of potential NPAs and persuade the government to provide additional equity and require the banks to raise more Tier I and Tier II risk capital. Banks need immediate infusion of capital to start lending.”

“At the same time, it will help if RBI provides sufficient amount of liquidity for banks as well as NBFCs. It will also have to coordinate with the mutual fund industry as a lot of poor-quality debt is sitting with mutual funds. In the medium term, we need to invest in development of private debt market and securitization,” added Sood.

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