The Centre and the Reserve Bank of India (RBI) are working on a scheme to boost capital in public sector banks reeling under the pressure of bad loans.
Speaking at an event organised by the Confederation of Indian Industry, RBI Governor Urjit Patel emphasised time-bound resolution of stressed assets.
“NPA resolution would necessitate a higher recapitalisation of these banks,” Mr. Patel said. “The Government and the RBI are in dialogue to prepare a set of measures to enable state-run banks to shore up the requisite capital in a time-bound manner,” he said.
‘Raising capital’
Mr. Patel said measures could include a combination of raising capital from the market, dilution of government holding, additional capital infusion by the government, mergers based on strategic decisions and sale of non-core assets. Observing that the ratio of gross non-performing assets in the banking system was 9.6% and that the stressed assets ratio was at 12%, as at the end of March, Mr. Patel said the persistently high ratio over the last few years was a matter of concern. He said 86.5% of GNPAs are accounted for by large borrowers that are defined as borrowers with aggregate exposure of ₹5 crore and above.
“Swift, time-bound resolution or liquidation of stressed assets will be critical for de-clogging the balance sheet and for efficient reallocation of bank capital,” Mr. Patel said.
RBI had recommended that banks initiate insolvency proceedings for 12 large defaulters, constituting 25% of the system’s NPAs. Lenders would have to take a haircut in the process, the RBI acknowledged.
“It is clear that state-run banks will need to take haircuts on current exposures under any resolution plan agreed within or outside the IBC. Higher provisioning requirements on this count as well as other factors will affect the capital position of several banks,” he said. On progress in the insolvency cases, Mr. Patel said, “early signs are encouraging.”
