‘RBI may push for resolution of bad loans worth Rs.8 lakh crore by March 2019’

The Dollar Business Bureau

Encouraged by The Banking Regulation (Amendment) Ordinance 2017, which was promulgated on May 4, the Reserve Bank of India (RBI) is likely to go in for resolution of bad loans amounting to around Rs.8 lakh crore by March 2019, a step that could help in bringing down the banks’ non-performing assets (NPAs) to satisfactory level as well as considerably improve their financial health, as revealed in a study by the industry body ASSOCHAM. 

“So, it should be safe to assume that the NPAs mess would largely be resolved by the first quarter of the financial year 2019-20. This would be helped by a combination of several factors – turnaround in the economic cycle and some resolute steps by the government and the RBI to fix the issue,” said a study titled “NPAs Resolution: Light at the end of the tunnel by March 2019.”

Though the overall NPAs can be taken under the resolution mechanism of Insolvency and Bankruptcy Code (IBC), it has to be looked at how much of these NPAs and how speedily these can actually be taken out from the banks’ balance sheets which are currently stressed, the study said. 

It is not undisclosed that NPAs are a huge drain on the financial condition of banks, specifically the public sector banks, it added.

For example, 27 public sector banks collectively accounted for an operating profit of Rs.1.5 lakh crore in the financial year 2016-17, but after making provisions for the bad loans, the net operating profit of the banks slipped to merely Rs.574 crore. 

If we look at the balance sheet figures, it simply indicates that banks are not in the capacity to provide fresh loans to corporates which is essential to push private sector investment, the study said. 

ASSOCHAM Secretary General D S Rawat, while releasing the report, said that the 16-month exercise for Asset Quality Review (AQR), which ended in March this year, brought out the NPAs in the open and now a deep surgery or strong medicine is needed to speedily heal the banking system. 

“So, somewhat a bitter medicine came in the form of the Ordinance promulgated by the President in May. The government gave wide- ranging legislative powers to the Reserve Bank of India (RBI) to issue directions to lenders to initiate insolvency proceedings for the recovery of bad loans that have reached unacceptably high levels,” Rawat said. 

The NPAs of entire public sector banks increased by more than Rs.1 lakh crore to Rs.6.06 lakh crore in the period April-December 2016-17, a majority of which were from steel, power, textile and road infrastructure sectors. 

Bigger loans of Rs.10 crore and more accounted for 79% of the overall gross non-performing loans.