Chief executives of some state-owned Indian banks are spending sleepless nights as the lenders stare at the prospect of reporting losses in the October-December and January-March quarters.
With the Reserve Bank of India (RBI) Governor Raghuram Rajan having set a March 2017 deadline to clean up banks’ balance sheets, lenders have been handed three lists. The first two contain the names of borrowers who haven’t paid their dues and whose loans have become non-performing as of March 2015. The lenders have now been advised to make provisions for these bad loans. Banks have to set aside 50 per cent provisioning each for the October-December and January-March quarter for the 150 accounts mentioned in the two lists. While there is no official figure of the amount banks have to provision for, some industry analysts estimate it could be in a range of about Rs.70,000 crore to Rs.1 lakh crore.
The third list, where banks have to identify loans that could become an NPA and accordingly provide for, is for 2016-17.
Markets appear to have got a whiff of the bankers’ stress. The BSE Bankex index of bank stocks has declined almost 12 per cent sofar this year with individual lenders faring worse. Punjab National Bank and Bank of Baroda have slumped about 20 per cent each, while State Bank of India has lost more than 19 per cent. Private sector lenders such as ICICI Bank and Axis Bank have also not been spared and declined 14 per cent and 17 per cent respectively.
Some bank chief executives met the RBI Governor and Deputy Governors S. S. Mundra and R. Gandhi on Monday “to discuss the current challenges with regard to the management of stressed assets in the banks’ books and the implementation of the various measures taken by RBI in this regard”, the central bank said in a statement.
The meeting reviewed the functioning of the Joint Lenders' Forum (JLF) Mechanism, Strategic Debt Restructuring Scheme and sale of assets by banks to Asset Reconstruction Companies.
Banks have been requesting the regulator to give them more time to make the provisioning, of at least six quarters. But, bankers said, the RBI was in no mood to relent.
The central bank is of the view that since the government is committed to support the banks in terms of capital, banks should take the one-time hit and clean up their balance sheets, bankers said. The banking regulator has kept the finance ministry informed about the actions it is taking to clean up banks’ books.
Higher provisions will erode capital at a time when banks have to meet the Basel-III norms. Public sector banks are constrained from raising capital from the market as most of them are trading at a discount to their book value. And the government, which is the owner of public sector banks, doesn’t want to sell the shares cheap. The government, which has its fiscal constraint, has promised capital infusion of 70,000 crore in the public sector banks in four years. The quantum, however, is seen as inadequate by many analysts and rating agencies.
