Stressed PSBs, corporate houses coming in way of complete recovery: Economic Survey

Banks must value their assets, as far as possible, close to the true value, as the Reserve Bank has been emphasising, the Survey said

The bleeding balance sheets of public sector banks (PSBs) and some corporate houses are coming in the way of private investment and a full-fledged economic recovery, according to the Economic Survey.

The answer would require recognition of the problem, recapitalisation of banks, resolution of the issues and reforms.
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Banks must value their assets, as far as possible, close to the true value, as the Reserve Bank has been emphasising. Once they do so, their capital position must be safeguarded via infusions of equity, as the banks have been demanding, it said.

The underlying stressed assets in the corporate sector must be sold or rehabilitated. Future incentives for the private sector must be set right, to avoid a repetition.
 

Banks' gross non-performing advances (GNPA) as a proportion of gross advances increased to 5.1 per cent between March and September 2015, from 4.6 per cent. Restructured standard advances as a proportion of gross advances declined to 6.2 per cent from 6.4 per cent in the period, while the stressed advances to total gross advances ratio increased to 11.3 from 11.1.

PSBs had the highest level of stressed assets (gross plus restructured) at 14 per cent of the total, followed by private sector banks (PVBs) at 4.6 per cent and foreign banks (FBs) at 3.4 per cent at end-September 2015.

Net non-performing advances (NNPA) as a proportion of total net advances for all scheduled commercial banks increased to 2.8 per cent from March to September 2015, from 2.5 per cent.

At the bank group level, the NNPA ratio of PSBs increased from 3.2 per cent to 3.6 per cent. In the case of PVBs and FBs, it remained unchanged at 0.9 per cent and 0.5 per cent, respectively.

The contribution of five sub-sectors — mining, iron and steel, textiles, infrastructure and aviation — to the total of stressed advances was 53 per cent. Stressed advances in the aviation sector increased to 61 per cent in June 2015 from 58.9 per cent in March. That of the infrastructure sector increased to 24 per cent, from 22.9 per cent.

The performance of these sectors and their impact on the asset quality of banks continue to be a cause for concern, the survey said.