The dilemma before the chief executive officers (CEO) of public sector banks is how to reduce the level of stressed assets (non-performing assets and restructured assets) by way of recovery as well as increase the good credit portfolio. This task can be achieved by making provision for stressed accounts and putting some of these assets back on track.
Banks have to maintain capital adequacy ratio, which forms a certain percentage of their risk-based assets. Higher the risk attached to a loan, higher the bank's interest income and higher the chances of delinquency.
Casa or current account savings accounts are low-cost deposits. With the granting of licences to payment banks and the advent of digital wallets, banks might be denied the privilege of keeping Casa with them.
Banks have to cap their deposits in cash reserve ratio at four per cent and statutory liquidity ratio at 21.5 per cent.
Another problem is whom does the bank give give loans to. Infrastructure, steel and aluminium and real estate sectors are under stress. Manufacturing is not picking up.
Banks have to make recoveries on stressed accounts. This way they would be required to make fewer provisions and also earn interest on non-performing assets. The RBI has given several tools to rein in delinquent borrowers such as Sarfaesi Act, the Debts Recovery Tribunal and state recovery tribunals.
Existing credit portfolio should be consolidated through effective credit monitoring. The strength and cash flow of the borrowing unit should be constantly reassessed to pre-empt any incipient sickness percolating in the accounts.
Banks should continue to make quality advances. Credit growth cannot be stopped. The duty of a banker is to grant loans. He cannot stop giving quality loans for fear of being accountable.
Tilak Gulati Kolkata
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