Banks need massive capital infusion to overcome NPA problem: RBI governor

Reserve Bank of India governor Urjit Patel has called for urgent recapitalisation of state-owned banks to survive on the face of mounting bad loans that have reached levels around 12 per cent of all banking sector advances.
Speaking at the CII-organised seminar on insolvency and bankruptcy, the RBI governor said overall stressed loans of the banking sector has touched 12 per cent of total loans.

Patel said of the total stressed loans, 9.6 per cent have turned non-performing assets (NPAs) and that large borrowers accounted for 86.5 per cent of the gross NPAs.

''Gross NPA ratio of the banking system at 9.6 per cent and stressed advances ratio at 12 per cent as of March 2017 on the back of persistently high ratio in the past few years, is indeed a matter of concern,'' Patel told bankers and industrialists in the presence of finance minister Arun Jaitley.

He said the balance sheets of most state-run banks are not healthy enough to take large haircuts - or the reduction in asset value that follows the resolution of an NPA - without an infusion of fresh capital.

''NPA resolution would necessitate a higher re-capitalisation of these banks,'' he said.

The success and credibility of all the NPA resolution efforts will be critically contingent on the strength of public sector banks' balance sheets to absorb the costs, and any resolution will involve deep haircuts.

Banks could raise capital from the market, dilute the government's stake, get more capital from the government or opt for mergers.

The RBI chief also blamed the lenders for the mess, saying their poor credit appraisal systems have led to the pile of bad loans, which tops over Rs900,000 crore now.