Public Sector Banks Need to Trim Bad Loans: RBI Governor

Emphasizing on a time-bound liquidation of stressed business assets and preparedness to control the bad loans, Urjit Patel Governor, Reserve Bank of India (RBI) urged public sector banks (PSBs) to control and shed the current exposure and to act on the resolution plan agreed within or outside the Insolvency and Bankruptcy Code (IBC).

Speaking at the national conference on Insolvency and Bankruptcy, he said that higher provisions requirement will affect the capital position of several banks and stated that this will necessitate higher recapitalisation of these banks.

The RBI Governor further said that the government and RBI were in discussion to prepare a package of measures which also include additional capital infusion by the government. 'The measures will include a combination of capital raising from market, dilution of government holding, additional capital infusion by government, merger with strategic fit and sale of non-core assets,' he said. Mr Patel also said that the regulatory or the economic challenge is how to deal with the issue of non-performing assets (NPAs), as gross NPA ratio of the banking system stood at 9.6 per cent and stressed advances ratio at 12 per cent as of March 31 on the back of persistently high ratio in the past few years, he said.

The RBI Governor highlighted the need for swift time-bound liquidation of stressed assets and said it will be critical for de-logging the balance-sheet and for efficient reallocation of bank capital. He lauded market regulator Sebi’s decision of mandatory disclosures within a day of default saying it will help improve the credit culture.

The national conference was jointly organised by the Ministry of Corporate Affairs (MCA), National Foundation for Corporate Governance (NFCG) and Insolvency and Bankruptcy Board of India (IBBI).