Banks must develop better risk-pricing skills, says RBI's Vishwanathan

Banks have to put in place proper risk-pricing mechanism, especially for funding long-gestation infra projects, if they want to prevent an encore of the present bad loan pile-up, Reserve Bank deputy governor 

N S Vishwanathan has said.

Banks are saddled with over Rs 10 trillion of bad loans in the system, most of them in infrastructure sectors like power, steel and road projects, forcing the RBI to list as many 40 largest NPA accounts, which constitute 40 per cent of the mess, to be referred to the national debt tribunals for recovery and resolution in 2017.

He said in many instances risk is underpriced so as to demonstrate that a project would be sustainable, and hence would be good to finance.

“It would be safe to assume that had proper risk pricing been done, many of the current NPAs could have properly assessed very well,in advance,” Vishwanathan told a credit markets conclave organised by Care Ratings on Thursday.

The gross non-performing assets of banks rose by 18.5 per cent on an annualised basis in the September quarter to over 10.2 per cent system wide or a little over Rs 10 trillion in absolute terms. And the regulator has projected it would cross 10.8 per cent by this March.