10 December 2015 07:28:29 IST

On swachh balance-sheet mission, RBI to review banks’ loan quality

Aimed at nursing stressed assets back to health

Inspired no doubt by the Centre’s ‘clean India’ campaign, the RBI has embarked on a ‘swachh balance-sheet’ mission for banks. In a bid to address concerns over growing bad loans, the Reserve Bank of India has initiated a review of banks’ asset quality.

The review is aimed at assessing how the various bad loans management schemes the RBI introduced the past few years are working and, if required, fine-tuning them to help the banking system nurse stressed assets back to health. Public sector banks are the primary targets for this review.

The stressed assets problem in the banking system is underscored by the fact that as on March-end 2015, gross non-performing assets (GNPAs) were 4.62 per cent of the gross advances, against 2.36 per cent as on March-end 2011. Public sector banks recorded the highest level of stressed assets (GNPAs plus restructured standard advances) at 13.5 per cent of total advances as of March 2015, compared with 4.6 per cent for private sector banks, as per RBI’s June Financial Stability Report.

The central bank has now sought details of large stressed assets, including date of implementation of the bad loan management schemes. Under the schemes, banks take corrective action under the aegis of the joint lenders forum, strategic debt restructuring (entailing debt-for-equity swap by banks and management change in companies) and 5/25 scheme (whereby long-term project loans of up to 25 years tenure to infrastructure and core industries sectors are refinanced every five years).

Joint effort needed A senior public sector bank official said the RBI is examining inherent weaknesses in each of the large accounts. The official added that it is possible for the stressed assets to be put back on track provided the regulator, the government (Central as well as State), banks and company promoters come together on a common platform and sort out the hurdles facing the accounts.

At the post monetary policy media conference on December 1, RBI Governor Raghuram Rajan had flagged the issue by saying that banks have been given a number of facilities to improve their asset quality. “We are very concerned and we insist that they be used in the right way,” Rajan had said.

“Hopefully, going forward banks will clean up the balance sheets in a significant way so that they will be in a position to grow and lend going forward. That is something that we are fully engaged in right now and we hope that the outcomes will be visible in the next year or so,” he had added.

Five sectors, namely, mining, iron & steel, textiles, infrastructure and aviation, which together constituted 24.8 per cent of the total advances of banks, had a much larger share of 51.1 per cent in the total stressed advances. Among these five sectors, infrastructure and iron & steel account for a significant 40 per cent of the total stressed advances.