Newly-appointed Reserve Bank deputy governor Viral V Acharya on Tuesday called for some urgent steps to resolve NPAs, saying none of the “piece-by-piece approach” offered so far has worked, including the AQR, simply because of “the many discretions given to banks” as also their “skewed incentive system.”
He also said even the December 2015 asset quality review (AQR) by the RBI has not helped resolve the issue, except in turning public attentions to the same.
Stating that timely resolution of NPAs is of essence if we were to restore corporate investment and create jobs, Mr. Acharya asked bankers to take NPA resolution “with a certain sense of urgency.”
“I wish to speak today, with a certain sense of urgency, about the need and possible ways to decisively resolve our banks’ stressed assets,” he said in a speech ‘Some ways to decisively resolve banks’ stressed assets,’ delivered at an IBA event here this evening.
The noted economist who joined the central bank only last month from New York University, noted that since asset quality review of December 2015, up to a sixth of public sector banks gross advances are stressed (NPAs, restructured or written-off), and a significant majority of these are in fact NPAs and for banks in the worst shape, the share of assets under stress has approached or exceeded 20%.
This estimate of stressed assets has doubled from 2013 in terms of what had been recognised by banks. Doubling of bad loans did not happen overnight and “there have been several hints — in the declining price-to-book ratios of bank equity, and in the many assets “parked” by banks under the CDR Cell were severely stressed.”
