NPA fight: RBI promises new package to shore up banks' capital
19 Aug 2017 4:36 PM GMT
Mumbai: The Reserve Bank and the government will come up with a recapitalisation package for state-run banks, which have been hit by higher provisioning for mounting bad loans, RBI Governor Urjit Patel said here on Saturday.
System level non-performing assets (NPAs) have crossed the level of sanity and banks will have to take bigger haircuts as gross NPA ratio has touched 9.6 per cent and stressed advances ratio was at 12 per cent as of March end, he said.
Besides, he said, 86.5 per cent of gross NPAs are accounted by large borrowers.
"Higher provisioning requirements for NPAs and other factors will affect capital position of several banks, necessitating a higher re-capitalisation. Government and RBI are in dialogue to prepare a pack of measures to enable state-run banks to shore up the requisite capital in a time bound manner," Patel told a CII-organised insolvency and bankruptcy summit, chaired by Finance Minister Arun Jaitley.
The government has made a budgetary provision of pumping in Rs 75,000 crore into state-run banks for the four-year period ending March 2019.
Patel said the measures being thought through could include a combination of capital raising from markets, dilution of government holding, additional capital infusion by government, mergers based on strategic decision and sale of non-core assets.
The government and the RBI have been working together to comprehensively address the NPA issue through a multi-pronged approach for some time now and the early signs are encouraging, he said.
No successful and credible NPA resolution can happen if the banks' balance sheets are weak as the outcome of the efforts is critically contingent on the strength of the balance sheets of lender to absorb the costs, Patel said. State-run banks, which sit on over 75 per cent of over Rs 8 trillion (Rs 8 lakh crore) NPAs "will need to take haircuts on their current exposures under any resolution plan agreed within or outside the IBC", he added.
This calls for urgent recapitalisation "as regulatory and economic challenges in dealing with NPAs gets accentuated when seen against the poor capital position of public sector banks," Patel said.
He called for swift and time-bound resolution of bad loans through resolution or liquidation for efficient reallocation of bank capital.
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