Bad loans rising faster than bank credit: RBI dy governor
15 September 2015
Stressed assets with banks are rising at an alarming pace and need urgent attention as they can impact banks' liquidity and erode their capital base, Reserve Bank of India (RBI) deputy governor R Gandhi said today.
In fact, he said, non-performing assets of banks are growing at a faster rate than growth of credit itself. Gross bad debt of 41 listed banks jumped to Rs3,30,000 crore by June 2015 compared with Rs91,178 crore in March 2011.
As percentage of total loans, bad loans accounted for 4.62 per cent as of March 2015 against 2.35 per cent in March 2011, he said.
''As of March 2015, it (gross bad loans) were at 4.62 per cent in comparison with 2.35 per cent of the gross advances in 2011,'' Gandhi told a group of bankers and asset reconstruction companies (ARCs) at an event.
The ratio of restructured assets to gross advances rose to 6.44 per cent at the end of March 2015 from 5.87 per cent a year ago, he said. Total stressed assets at the end of March 2015 stood at 11.06 per cent of gross advances, he added.
Gandhi said RBI is considering a proposal to limit the number of banks in a lenders consortium in order to limit the spread of NPAs among banks as and when loan recovery becomes difficult, adding, however, that such a move could also leave some banks with more bad loans.
Gandhi's comments are part of the Reserve Bank's efforts of nudging banks to reduce the burden of non-performing assets before they start pushing up lending afresh.
Unless banks reduce their non-performing assets, any plans by the government to inject fresh capital into these state-run lenders will not have the desired effect.
The government proposes to inject over Rs60,000 crore into state-run lenders over the next four years in a bid to help them clean up their balance sheets.
The ratio of restructured assets to gross advances rose to 6.44 per cent at the end of March from 5.87 per cent a year ago, he said. Total stressed assets at the end of March were at 11.06 per cent of gross advances, he added.
While discussing ways to better manage the rising bad loans in the system with banks and ARCs, Gandhi pointed out that lenders will have to be more transparent while selling assets. A better way to enforce this is to be more transparent in the auction process to sell assets to the ARCs, he said.
''If a bid received is above the reserve price and also fulfills other conditions specified, the acceptance of that bid would be mandatory,'' Gandhi said.
RBI also wants banks to improve credit and project appraisal capabilities in order to reduce the bad loans.
''Considering the requirement of independent evaluation by JLFs (joint lender forums), there is a crying need for emergence of additional technical capabilities to undertake evaluation of projects,'' Gandhi said.
The regulator also proposes to improve such capabilities in banks through its centre for advanced research and learning.