 "Photo: Kamlesh Pednekar")
Reserve Bank of India's stance in dealing with the bad loans problem seem to have shifted form an aggressive approach under Raghuram Rajan, the former RBI governor, to a more pragmatic one under Urjit Patel, the new central bank chief.
"We will deal with the situation with firmness but also with pragmatism so that the economy does not feel any lack of credit to support the growth of the economy. We must remember that the situation has not appeared overnight and therefore will require skill and thoughtful endeavour to resolve," said Patel.
This comes at a time when the bank credit to the corporate sector has remained sluggish dragging the overall credit offttake in the system to single digits. This is because owing to the large amount of NPA in the corporate sector banks are wary of lending to certain segments and also due to slow pace of economic activity the demand for credit has also been low.
Patel added that helping banks to deal with this situation is going to be of utmost importance. However, even though there may be a change in approach to dealing with this sticky bad loan problem the efforts will continue.
"Just five sectors contribute 61 per cent to the stressed sectors of the banking sector. Infra, steel, textiles, power and telecom. The sectors are each individually important and dealing with stressed assets will require skill and creativity," said Patel.
The gross non-performing assets (NPAs) of public sector banks have risen from Rs 5.02 lakh crore in March 2016 to Rs 5.59 lakh crore in June 2016.
In the last few years the regulator has come up with several steps such as Joint Lenders forum, Strategic Debt Restructuring, 5/25 scheme etc to tackle the bad loans problems. Recently, the Scheme for Sustainable Structuring of Stressed Assets (S4A) was unveiled but now RBI has decided to review these guidelines to make them more effective.
"There was this idea that the sustainable portion of this debt irrespective of what it was before should be classified as standard. So they have agreed to that and we will be coming up with the final guidelines on that by end of October. There will be certain conditions subject to which it will be done so that it is not used for wrong cases.
In these S4A norms banks are to divide the existing debt of a company into 'sustainable' (the share which can be serviced by the company even if cash flow remains the same as now) and 'unsustainable'. An independent oversight agency will ascertain the economic viability of a project and the resolution plan.
Bankers have welcomed the tweaking of the S4A norms. "The smoothening of S4A guidelines will help the easier resolution of stressed assets and will be a relief to the banking system," said N S Venkatesh, Executive Director, Lakshmi Vilas Bank.
Sriram, managing director, State bank of India also said that the proposed modification in the rules for S4A will be beneficial to take up cases for restructuring. However, it is too early to specify if more cases would be dealt.
