 "RBI")
The Reserve Bank of India (RBI) on Thursday said even though there had been a few positives on the bad loans front, the current level of dud loan resolution was untenable as there had been a deterioration in non-performing assets (NPA), and promised new measures to tackle the pain.
“The present level of NPA resolution is untenable,” Governor Urjit Patel said while addressing the media after announcing the first bi-monthly policy for financial year 2017-18.
Deputy Governor S S Mundra, who heads the banking department, chipped in saying “we are yet to get the final result of Q4 which has just ended. But based on the figures that were available for the December quarter, the various indicators of the stressed assets have further deteriorated during this period.”
He said the positives achieved by the banks include a slowdown in the accretion of fresh NPAs and stable provision coverage ratios.
The former commercial banker cautioned that the current situation will put pressure on capital for the banks, especially for the state-run ones.
As resolution of the stress comes into the foreground, Mundra said there was a need to understand that there cannot be a “one size fits all” approach and advocated adoption of various tools.
He reiterated RBI was also in talks with the government on how to improve the existing frameworks, and the discussions were centred on how to act faster on joint lenders’ forum decisions, enhance the number and role of oversight committees, or whether to look at sector or size-specific problems while tackling resolution.
RBI has introduced a slew of instruments to tackle the NPA menace, which had crossed 9.5 per cent of the system or Rs 14 lakh crore as of December 2016, including strategic debt restructuring, 5/25 restructuring, joint lenders’ forum and Prompt Corrective Action (PCA), which will be out by end-April.
Even as speculation rages if RBI will introduce a new instrument or tweak an existing one, Mundra said there can be a “relook” at the existing instruments.
“The message that we are trying to give is that all these instruments are meant for resolution in a serious sense and not for postponement of the problem. That will be the focus going forward,” he said.
In the policy document, RBI also said a revised PCA framework will be introduced for banks in mid-April.
RBI also increased minimum capital requirement for asset reconstruction companies to Rs 100 crore from Rs 2 crore earlier. RBI also announced it will be tweaking the capital requirements for partial credit enhancement framework.
It has also decided not to activate the counter-cyclical capital buffer at this point of time.
Sidelights:
Still more scope for banks to cut rates
The Reserve Bank of India (RBI) on Thursday said there was more scope for banks to cut lending rates and also asked for a downward revision in the small savings rates administered by the government. After the last policy review in February, RBI Governor Urjit Patel had said there was scope for more rate cuts by banks, adding that the weighted average lending rate came down only 0.85-0.90 per cent, against a 1.75 per cent cut in policy rates since January 2015. Since then, banks have not lowered their lending rates. The lack of transmission has been one of the dominant worries expressed by the RBI during the past two years when it was in an accommodative stance. It may be noted the government had been blaming the higher rates being maintained both by the RBI as well as by banks for the slowdown in credit offtake which has hurt the economy. As of the second week of March, it hit a record low of around 3.5 per cent.
NEFT transfer to get quicker as RBI cuts clearance time
The Reserve Bank of India (RBI) has decided to slash clearance time for National Electronic Funds Transfers (NEFT), in an attempt to enhance efficiency of the electronic payments system and add to customer convenience. In line with the document on Vision-2018 for Payment and Settlement Systems, the NEFT settlement cycle will be reduced from hourly batches to half-hourly batches, the RBI said in the first bi-monthly monetary policy for 2017-18. “Consequently, 11 additional settlement batches will be introduced at 8.30 am onwards, taking the total number of half hourly settlement batches during the day to 23,” newly-appointed Deputy Governor B P Kanungo said. This will enhance the efficiency of the NEFT system and add to customer convenience, he said. On promoting financial inclusion and literacy, it said the RBI is initiating a pilot project on financial literacy at the block level to explore innovative and participatory approaches to financial literacy.
Banking outlet guidelines by month-end
The Reserve Bank of India (RBI) will release by this month-end detailed guidelines on “banking outlet”, aimed at covering the under-served areas. These will supersede the branch licensing guidelines in force, the central bank said in its first bi-monthly monetary policy of 2017-18 on Thursday. This bank authorisation scheme is one where the RBI is moving away from emphasis on a brick-and-mortar branch to fixed locations where banking service is available, RBI Deputy Governor N S Vishwanathan said. The RBI’s branch licensing guidelines, while considering applications for opening branches, give weight to the nature and scope of banking facilities provided by banks to common persons, particularly in under-banked areas.
