On Wednesday, the monetary policy committee of the Central Bank underlined the need for an early resolution of the rising non-performing assets of some banks.
The rise in the case of some banks is due to many of the restructured assets falling into the non-performing assets (NPA) category.
During a media interaction post the presentation of the Sixth Bi-monthly Monetary Policy Statement, RBI Deputy Governor S.S. Mundra stated that for the first time in few quarters “it is seen that in a few banks the ratio of (gross) NPAs has come done vis-à-vis preceding quarters. Similarly in the case of net NPAs consistent with gross NPAs, while there is an elevation, it has come down in a large number of banks showing that the level of provisioning is quite adequate.”
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Mundra however pointed out that “there is also conversion of restructured debts falling into NPA category and as a result there is reduction across the industry in the percentage of restructured assets. Overall, the system has shown an improvement in the operating profits. But on the back of fire provisioning, I think some of the pressures on net profit would continue.”
The six-member RBI monetary policy committee, which opted to maintain the repo rate (the rate at which banks borrow from banks) at 6.25 per cent citing inflation concerns on back of global trends, in its statement also underlined the need for “more quickly and efficiently” resolving the NPAs issue in the banking sector and also hastening a re-capitalisation of the banking sector.
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The Union Budget has only provisioned Rs. 10,000 crore for the re-capitalisation of the banks, which are estimated to have NPAs to the tune of Rs. 5 lakh crores. Most of these NPAs are related to infrastructure projects failing to take off.
Mundra underlined that while most banks will be well placed to meet the regulatory norms for capital adequacy “but going forward quite a few will be required to raise additional capital”.
