Tag: bad loans

A ₹2-lakh crore worth of debt looms over new bad bank

Banking & Finance

[ad_1]

Read More/Less


A bad bank in India that’s expected to launch this month may help reduce one of the world’s worst bad-loan piles, but market participants say it’s a long path ahead.

The new institution, which is set to start operations by the end of June, is likely to handle stressed debt worth ₹2 lakh crore ($27 billion) over time, according to a BloombergQuint report. That would be about a quarter of the nation’s non-performing debt load. By housing bad loans of many lenders under one roof, the entity should help speed up decision-making and improve bargaining power when resolving these assets.

 

But for India to overcome its struggles with bad debt and stabilize the financial system of Asia’s third-largest economy, more fundamental problems with insolvency laws introduced in 2016 need to be addressed, investors say. Their confidence in the country’s bankruptcy reforms has been shaken as creditors’ recovery rates fall, delays in closing cases increase, and liquidations exceed resolutions in the insolvency courts.

Market participants will watch whether the bad bank focuses on resolving the assets rather than keeping them like a warehouse, and whether its team includes appropriate industry and turnaround experts.

 

“The proposed bad bank is useful as a one-time clean-up exercise of the bad loans that are pending resolution for years now,” said Raj Kumar Bansal, managing director at Edelweiss Asset Reconstruction Co. “But it’s not a long-term solution in dealing with the stressed assets,” he said, adding that bankruptcy reform is key.

Less than one in 10 companies admitted in the insolvency courts is getting resolved while a third are facing liquidation, data compiled by Insolvency and Bankruptcy Board of India show. The recoveries for financiers from the resolved cases have also dropped to 39 per cent of dues as of March from 46 per cent a year earlier. And if the top nine cases by recovery are excluded, lenders received just 24% of dues, according to Macquarie Capital.

Bankruptcy reforms

“India’s bankruptcy reforms started off well but they have slowed currently,” said Nikhil Shah, managing director at Alvarez & Marsal India. “Prolonged delays in resolutions, lengthy court battles, and uncertainty of recoveries post-approval of resolution plans are pushing many potential investors away” from the bankruptcy process, he said.

 

Shah expects the delays in resolutions to worsen further unless the government and judiciary address some of the primary issues, such as increasing the number of judges and investing in digital infrastructure to boost productivity.

Indian Banks’ Association, which is helping with plans for the proposed bad bank, and Insolvency and Bankruptcy Board of India, didn’t immediately respond to emails seeking comment.

For now, Indian banks will be happy to finally kick away some of the stressed loans to the proposed entity. The sector’s bad-loan ratio is set to almost double to 13.5 per cent of total advances by the end of September, India’s central bank said in a report published before the second wave of coronavirus infections hit the country.

“Stressed loans have taken far too much management time across the industry in the past couple of years,” Prashant Kumar, chief executive officer at Yes Bank Ltd., told Bloomberg. “This bad bank will help shift focus from resolving soured loans to improving credit growth.”

[ad_2]

CLICK HERE TO APPLY

Leave a comment , ,

RBI has taken steps to smoothen impact of second COVID wave, says Deputy Governor Jain, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


Asserting that the second wave of COVID-19 has posed some challenges, RBI Deputy Governor M K Jain on Friday said both the central bank and the government have taken steps to mitigate its impact. He also said the domestic banking system is strong, as per the preliminary data for the quarter ended March 2021.

“I am happy to inform that the banking sector was in strong position when COVID-19 hit…the preliminary data suggest that in terms of CRAR that has been improved upon, the profitability has been improved upon, provision coverage ratio that has also been improved over the previous year, and the gross NPA as well as net NPA has come down,” he said.

Jain was addressing a virtual conference organised by the India International Centre (IIC) and Research & Information System for Developing Countries (RIS).

Observing that the COVID-19 second wave has some challenging aspects, he said both the RBI and the government are dealing with this and taking steps to smoothen the impact on the financial system.

The central bank has announced a slew of measures in the last two months to help flow of credit to the desired sectors and maintain adequate level of liquidity in the system.

Earlier this month, RBI kept its benchmark interest rate unchanged in view of elevated level of retail inflation.

Jain said the RBI strives to ensure financial resilience of banks and NBFCs by prescribing a set of micro prudential norms like minimum capital requirements.

To maintain resilience, he said, the RBI has asked financial entities to undertake stress tests at regular intervals and accordingly take risk mitigation measures.

Jain further said the financial system, both in India and overseas, is witnessing rapid shifts in the operating environment due to changing competitive landscape, automation and increasing regulatory supervisory expectations.

The Reserve Bank of India has put in place various regulations to improve the governance in banks and make them more resilient, he emphasised.

“In addition, banks have also made improvements in the risk management capacities. Yet, the changing operating and risk environment requires banks to be vigilant, strong and agile so as to identify risks early and absorb the shocks and be able to adapt to the newer ground realities.

“I am hopeful that banks and other financial institutions in India will rise to the challenge, continue to demonstrate the resilience and be able to contribute to a USD 5 trillion economy and beyond,” he said.

Talking about the link between financial system and climate resilience, Jain said while insurance companies directly face the climate risk, banks are also required to take into account such risks more seriously.

In addition to mitigating operational risk arising out of climate extremes, he said there is a need for the financial system to move towards green financing, keeping in mind the development requirement of the country.

“While as of now RBI has not come out with any regulatory prescriptions, but we are evaluating all those aspects and then at the appropriate time after evaluating all the things a call may be taken,” he said.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , ,

First phase: Rs 89k-crore loans to be moved to NARCL

Banking & Finance

[ad_1]

Read More/Less


The government’s plan, as outlined in the Union budget for 21-22, is to create an ARC and an AMC to take over and resolve bad loans.

By Ankur Mishra

Lenders have identified 22 stressed accounts, worth around Rs 89,000 crore, to be transferred to the proposed National Asset Reconstruction Company (NARCL) in the first phase. A much larger exposure — of an estimated Rs 2 lakh crore — is expected to be transferred over time.

The chairman of Indian Banks’ Association (IBA), Rajkiran Rai G, said banks have identified accounts which can go to the ARC in the first phase and have arrived at this number. “However, once the ARC is formed, the management will look at these assets and only if they find that it is worthwhile, they will make an offer,” Rai said.

Rai, who is also MD and CEO of Union Bank of India, said of the total amount, Union Bank had identified Rs 7,800-crore bad loans will be sent to NARCL. The lender will also pick up a 9% stake in the asset reconstruction company. Similarly, Punjab National Bank (PNB) MD and CEO SS Mallikarjun Rao on Saturday had said the lender had identified Rs 8,000-crore NPAs to be sent to NARCL.

“What we have done is a preliminary work to keep the ground ready so that when the ARC is registered, it can take off quickly,” Rai said. The accounts identified are those where the provision coverage is nearly 100% and the exposure is more than Rs 500 crore. The government’s plan, as outlined in the Union budget for 21-22, is to create an ARC and an AMC to take over and resolve bad loans.

Rai said the Indian Banks’ Association (IBA) has asked lead banks to call for meetings and keep an approval ready so that as soon as the ARC is formed, they can start the process. Care Ratings had earlier said that that once the transfer of Rs 2 lakh crore was complete, the revised gross bad loan ratio could be around the same levels prior to the asset quality review exercise conducted by the Reserve Bank of India (RBI) in 2015.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , ,

Public sector banks list Rs 82,500 crore NPAs for bad bank, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


Public sector banks have shortlisted 28 loan accounts to be transferred to the National Asset Reconstruction Company (NARCL). Of these, lead banks have completed the process of obtaining approval from co-lenders in 22 accounts with Rs 82,500 crore of loans due. Within this amount, borrowers such as VOVL, Amtek Auto, Reliance Naval, Jaypee Infratech, Castex Technologies, GTL, Visa Steel and Wind World account for 80%.

Other large companies that are to be sold to the NARCL include Lavasa Corporation, Ruchi Worldwide, Consolidated Construction and a few toll projects.

According to banking sources, work is progressing on multiple fronts to ensure that the bad bank starts operations as soon as possible. On Wednesday, bankers met to finalise the capital structure of the bad bank (NARCL). Sources said that the company would need at least Rs 6,000-crore capital of equity and debt to start operations. In terms of Reserve Bank of India (RBI) regulations, asset reconstruction companies (ARCs) must pay 15% of the purchase consideration in cash upfront. Even if these 22 non-performing assets (NPAs) were valued at 50% of the loan amount, the ARCs would have to pay over Rs 12,000 crore to banks. The NARCL can, however, raise money on its own.

Since all these 28 loans have been fully provided for, any consideration that the banks receive will go into their bottom line as profit. Once the capital structure is finalised, the promoters will seek a licence from the RBI. Lenders have decided to ask power finance companies to be the promoters as most other large lenders have a stake in existing ARCs. While all banks will hold just below 10% stake, Canara Bank and Bank of Maharashtra will hold just over 10% and may be given promoter status. Most other large banks will contribute to the ARCs’ equity. The articles of association of the NARC have already been finalised. Simultaneously, lenders are also discussing the setup of the asset management company that will do the recovery work. Lenders are hopeful of completing the loan transfer to the NARCL in July.

Finance minister Nirmala Sitharaman had announced in the Budget the setting up of a bad bank (NARCL) to acquire the NPAs from banks. The NARCL was to be in the public sector so that lenders do not have any problems in selling their bad loans. The NARCL would pay 15% in cash and the balance in security receipts, which are similar to units in a mutual fund with the consolidated bad loan being the underlying asset. The government would provide a guarantee to the security receipts issued by the bad bank, which would improve their valuation.

Besides the loans having been fully provided for, the other requirement was that each loan should be above Rs 500 crore. Also, loans that were classified as fraud or were in the midst of a liquidation process were not eligible. Many of these large accounts are undergoing recovery proceedings by banks and buyers have shown interest in these companies. The consolidation of loans will enable faster decision-making by the NARCL.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , , ,

Central authority needed to vet write-off, compromise proposals: AIBEA

Banking & Finance

[ad_1]

Read More/Less


The All India Bank Employees’ Association (AIBEA) has called for the setting up of a Central authority, comprising retired bankers with credit knowledge and integrity, under the auspices of the Central Vigilance Commission (CVC) to vet the proposals for write-off and compromise.

The authorities or the Committees that have sanctioned loans must not have the powers to write-off the same, according to CH Venkatachalam, General Secretary, AIBEA. “The (public sector) banks are bleeding because of the problem of bad loans and huge write-offs and provisioning are being made year after year from out of the operating profits,” he said.

Also read: Delay in insolvency resolution continues to be cause for concern

As per the Association, in 2019, bad loan write-offs by banks amounted to ₹1,83,391 crore and the amount transferred from operating profits as provisions for bad loans/ NPAs (Non-Performing Assets) was at ₹2,29,852 crore.

‘Compromise’ proposals

Venkatachalam emphasised that all write-off proposals beyond a particular limit should be disposed off by the Central Authority constituted specifically for the purpose. Further, “compromise” proposals should be screened at the highest levels. He alleged that going by present day experience, these so-called “compromise proposals” are nothing but camouflage and cover-up of collusive acts.

“Willful bank loan default should be treated as a criminal offence… personal guarantees/ assets of the borrowers including directors of the corporate sector should be attachable for recovery of bank loan dues as has been held by the Supreme Court of India,” Venkatachalam said.

In a representation to the RBI’s committee on the functioning of Asset Reconstruction Companies (ARCs), AIBEA said, “Looking to ARCs’ track record, recovery performance, and the loss borne by the banks on bad debts handled by ARCs, we are very clear that ARCs are not required but stringent laws should be enacted to recover all willful defaults at a relatively quick-time.”

Also read: Private sector banks increased share in deposits, credit at the cost of PSBs in FY21:

The Association suggested that banks should be banned from lending to a company or group of companies, which defaulted and whose account has become a NPA in a particular bank. “The loans of such groups in other banks should also be treated as NPA and should be recalled by the banks. This, we feel, would enable speedy recovery of willfully defaulted corporate loans,” Venkatachalam said.

‘No participation’

The company or group of companies should not also be allowed to participate in the auction for purchase of assets of other defaulting company or group of companies that are brought through SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) or ARCs.

The Association said in case of ARCs, as far as the Public Sector Banks are concerned, the amount of discount with which a bad loan is sold, the discounted amount should be replenished by the government of India as they are the primary owners of these banks.

Also read: Bank credit growth declines to 5.6 per cent in March

“The present system of sharing recovery on water-fall structure has to change. At present, ARC recovers first its legal and resolution expenses and then management fees and thereafter the recovery is shared in the agreed ratios. This needs to be changed to proportionate sharing of all the items so as to keep the ARC driving recovery,” Venkatachalam said.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , ,

Banks likely to transfer about 80 large NPA accounts to NARCL, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


Banks are likely to transfer about 80 large NPA accounts for the resolution to National Asset Reconstruction Company Ltd (NARCL), which is expected to be operational by next month.

NARCL is the name coined for the bad bank announced in the Budget 2021-22. A bad bank refers to a financial institution that takes over the bad assets of lenders and undertakes resolution.

The size of each of these NPAs accounts is over Rs 500 crore and the banks have identified about 70-80 such accounts to be transferred to the proposed bad bank, sources said.

It is expected that NPAs over Rs 2 lakh crore will move out of the books of the banks to the bad bank, they added.

The company will pick up those assets that are 100 per cent provided for by the lenders.

Finance Minister Nirmala Sitharaman in the Budget 2021-22 announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books.

“An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt,” she had said in the Budget speech.

It will then manage and dispose of the assets to alternate investment funds and other potential investors for eventual value realisation, she added.

Last year, the Indian Banks’ Association (IBA) had made a proposal for the creation of a bad bank for swift resolution of non-performing assets (NPAs). The government accepted the proposal and decided to go for asset reconstruction company (ARC) and asset management company (AMC) model for this.

NARCL will pay up to 15 per cent of the agreed value for the loans in cash and the remaining 85 per cent would be government-guaranteed security receipts.

The government guarantee would be invoked if there is a loss against the threshold value.

The Reserve Bank of India (RBI) has said that loans classified as fraud cannot be sold to NARCL. As per the annual report of the RBI, about 1.9 lakh crore of loans have been classified as fraud as of March 2020.

To facilitate the smooth functioning of asset reconstruction companies, the RBI last month decided to set up a panel to undertake a comprehensive review of the working of such institutions.

After enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act in 2002, regulatory guidelines for ARCs were issued in 2003 to enable the development of this sector and to facilitate the smooth functioning of these companies.

Since then, while ARCs have grown in number and size, their potential for resolving stressed assets is yet to be realised fully.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , ,

Anchor investor Bay Tree India cuts stake in YES Bank to 5.40%

Banking & Finance

[ad_1]

Read More/Less


Bay Tree India Holdings I LLC has cut its stake in YES Bank further from 6.03 per cent as at March-end 2021 to 5.40 per cent now.

Bay Tree India Holdings (BTIH) had 7.48 per cent stake in YES Bank as at December-end 2020.

BTIH, which is a part of New York-based Tilden Park Capital Management, was the biggest anchor investor in YES Bank’s further public offer (FPO) in July 2020.

It invested about 55 per cent of the ₹4,098 crore the bank mopped up from anchor investors. Overall, the bank raised ₹14,850 crore (net of share issue expenses) through the FPO.

Along with BTIH, Axis Bank and Kotak Mahindra Bank, too, cut their stake in the private lender in the fourth quarter of FY2021.

As at March-end 2021, Axis Bank and Kotak Mahindra Bank’s shareholding in YES Bank came down to 1.96 per cent (2.39 per cent as at December-end 2020) and 1.52 per cent (1.76 per cent), respectively.

State Bank of India (SBI) continues to be the biggest investor in YES Bank, with 30 per cent stake. India’s largest bank reduced its stake in the private sector bank from 48.21 per cent to 30 per cent in the second quarter of FY21.

Troubled financials

YES Bank reported a net loss of ₹3,788 crore in the fourth quarter ended March 31, 2021 against a net profit of ₹2,629 crore in the year ago quarter.

In the reporting quarter, the bank made a substantial provision of ₹6,510 crore towards bad loans against ₹1,100 crore in the year ago quarter.

The bank’s net interest income was down 22.5 per cent year-on-year (y-o-y) to ₹987 crore. Non-interest income rose 36.6 per cent y-o-y to ₹816 crore.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , ,

RBI to strengthen risk-based supervision of banks, NBFCs, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


The Reserve Bank has decided to review and strengthen the Risk Based Supervision (RBS) of the banking sector with a view to enable financial sector players to address the emerging challenges.

The RBI uses the RBS model, including both qualitative and quantitative elements, to supervise banks, urban cooperatives banks, non-banking financial companies and all India financial institutions.

“It is now intended to review the supervisory processes and mechanism in order to make the extant RBS model more robust and capable of addressing emerging challenges, while removing inconsistencies, if any,” the RBI said while inviting bids from technical experts/consultants to carry forward the process for banks.

In case of UCBs and NBFCs, the Expression of Interest (EOI) for ‘Consultant for Review of Supervisory Models’ said the supervisory functions pertaining to commercial banks, UCBs and NBFCs are now integrated, with the objective of harmonising the supervisory approach based on the activities/size of the supervised entities (SEs).

“It is intended to review the existing supervisory rating models under CAMELS approach for improved risk capture in forward looking manner and for harmonising the supervisory approach across all SEs,” it said.

Annual financial inspection of UCBs and NBFCs is largely based on CAMELS model (Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Systems & Control).

The RBI undertakes supervision of SEs with the objective of assessing their financial soundness, solvency, asset quality, governance framework, liquidity, and operational viability, so as to protect depositors’ interests and financial stability.

The Reserve Bank conducts supervision of the banks through offsite monitoring of the banks and an annual inspection of the banks, where applicable.

In case of Urban Cooperative Banks (UCBs) and NBFCs, it conducts the supervision through a mix offsite monitoring and on-site inspection, where applicable.

A technical advisory group consisting of senior officers of the RBI would examine the documents submitted by the applicants in connection with EOI.

EOI said the consultant would be required to work in close co-ordination with officers of RBI’s Department of Supervision in Mumbai.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , ,

Analysts expect high slippages in banks’ Q4 results after SC verdict

Banking & Finance

[ad_1]

Read More/Less


Reported slippages would be elevated, KIE said, but banks were not expected to report a worrying ratio, given the improvement seen in economic recovery in recent quarters.

As banks report their first set of quarterly earnings after the Supreme Court vacated an interim stay on the recognition of fresh bad loans, slippages could be elevated in Q4FY21, analysts said. Lenders could also reverse some amount of interest income, which could get reflected in their net interest income (NII) numbers. Kotak Institutional Equities (KIE) expects NII growth to be 18% year on year (YoY) for banks. “On the net interest income line, we see a higher level of one-off income recognition (due to NPL recovery) and income de-recognition (slippages recognised in this quarter on a cumulative basis for lenders who have not done it previously),” the brokerage said, adding that treasury income would be lower, too.

Reported slippages would be elevated, KIE said, but banks were not expected to report a worrying ratio, given the improvement seen in economic recovery in recent quarters. “We expect overall NPL (non-performing loan) ratios to remain significantly lower than RBI projections, considering that we have seen significant recovery of bad loans from a few companies (steel and infrastructure),” KIE said. Reported write-offs could be high as well.

Loan losses in the banking sector, as measured by the gross non-performing asset (GNPA) ratio could nearly double to 13.5% by September in a baseline scenario, and to as high as 14.8% in a severe-stress scenario resulting from the pandemic, the RBI had said in its last financial stability report (FSR). Volatile trends could emerge on provisions as lenders are likely to dip into Covid provisions made earlier or make higher provisions this quarter as well.

Analysts at Motilal Oswal Financial Services said while overall trends in asset quality had fared better than expectations, the recent surge in Covid-19 cases and the fear of a lockdown in key districts necessitate being watchful on asset quality. “While many banks have already provided for this likely increase and carry additional provision buffers, which should limit the impact on profitability, we expect them to continue to strengthen their balance sheets and credit cost to remain elevated,” they said in a report.

While analysts have mixed views on the pace of loan growth, most of them expect it to be driven by retail credit. Corporate credit growth remains muted in a scenario of overall deleveraging and lower risk appetite on the part of lenders.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , ,

Banks may be hiding much more NPAs than what is revealed, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


Lenders will see bad loans rise by Rs 1.3 lakh crore after the SC lifted the moratorium on classifying overdue loans as non-performing assets, but they may be hiding more skeletons in their books.

The order is positive for lenders as it removes uncertainty on the classification of defaulters. The lifting of the stay on the classification of loans as NPAs will not hurt banks as they have been keeping money aside for this eventuality.

Following the Supreme Court (SC) stay order, banks have not tagged overdue loans as NPAs since August 2020. However, they have been listing such loans as portfolio-level pro-forma NPAs. For example, the actual bad debt for Axis Bank at the end of December 30, 2020, was 4.55% of its total loans while it reported NPAs of 3.44%. For Bank of Baroda the actual NPA was 9.63% but it reported 8.48%. In the case of Canara Bank, the actual NPA was 8.95% and the reported one was 7.46%.

The silver lining is this is just 16% more than the currently recognised NPA level, not any huge rise as modelled by the RBI stress tests.

ICRA estimates

According to ICRA’s estimates, in the absence of the SC’s standstill order, the gross NPAs (GNPAs) of the banks stood at Rs 8.7 lakh crore, or 8.3% of advances. This, as against the reported GNPA of Rs 7.4 lakh crore (7.1%) as on December 31, 2020.

“Hence, in absence of a standstill by the Supreme Court, the GNPAs for the banks would have been higher by Rs 1.3 lakh crore (1.2%) and net NPAs would have been higher by Rs 1 lakh crore (1%)

Economic survey

The Economic Survey 2021 had called for a fresh review of the asset quality of banks once the Covid-19- related regulatory forbearances are withdrawn.

“A clean-up of bank balance sheets is necessary when the forbearance is discontinued. Note that while the 2016 AQR exacerbated the problems in the banking sector, the lesson from the same is not that an AQR should not be conducted,” the Economic Survey said.

“Given the problem of asymmetric information between the regulator and the banks, which gets accentuated during the forbearance regime, an AQR exercise must be conducted immediately after the forbearance is withdrawn,” the survey said.

Forbearance represents emergency medicine that should be discontinued at the first opportunity when the economy exhibits recovery, the survey stated. In the past, banks exploited the forbearance window for window-dressing their books and misallocated credit, thereby damaging the quality of investment in the economy.

Citing the example of the global financial crisis of 2008, it said that the forbearance which was announced by the RBI helped borrowers tide over temporary hardships. But the continuance of this even after economic recovery led to unintended consequence in the form of banks window dressing their books and misallocating credit. This in turn damaged the quality of investment in the economy as borrowers who benefitted from the forbearance invested in unviable projects.

Giving examples, the report said the recent events at Yes Bank and Lakshmi Vilas Bank corroborate that the asset quality review did not capture evergreening of loans carried out in ways other than formal restructuring.

“Had the review detected evergreening, the increase in reported NPAs should have been in the initial years of the exercise.”

RBI stress tests

Reserve Bank of India, in its financial stability report in January, had said that if the economic scenario were to worsen into a severe stress scenario, the bad loans could rise to 14.8% of the loans. For public sector banks, the rate could go up to 16.2% under a baseline scenario and 17.8% in a severe stress one.

In 2011 too, banks had started accumulating bad loans after a lending binge between 2004 and 2010, but they did not declare these bad loans as bad immediately. Only after an asset quality review in mid-2015, the banks started recognising them as bad and unearthed a big mountain of NPAs.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , ,
1 2 3 4