Bad loan not posing risks to economy, says RBI

The bad loan problem, or the non-performing assets (NPAs), of banks is not posing any risk to the economy, says the Reserve Bank of India (RBI). It thinks that the problem is coming down and that banks have kept adequate provisions against the bad assets.

S S Mundra, RBI deputy governor, said in a post-policy conference, “Overall, the (banking) system has shown an improvement in operating profit. But on the back of our provisioning, I think some of the pressure on net profit would continue.” He said the RBI guidelines on providing adequate provisioning to cover bad loans would continue to put pressure on banks’ profitability for some time, even though some banks are witnessing a reduction in the proportion of NPAs.

Since many of the public sector banks are yet to announce their results, including State Bank of India, Mundra said, “We are yet to receive the results from all the banks for the third quarter. While there is some elevation in gross NPA ratio in the banking system across categories, whether it is public sector banks or private sector banks, but for the first time in the few quarters, this time it is seen that in few banks the ratio has come down vis-a-vis the preceding quarter. Also, there has been a conversion of restructured assets falling into NPA category and as a result, across the industries, there is a reduction in the percentage of restructured assets.”

The new deputy governor Viral Acharya said the proposed bad debt bank if designed well could work progressively to resolve the NPAs on banks’ books. “I don’t think a bad debt bank just by itself will necessarily work. It has to be designed right. The big piece of the problem is can you get the bank to sell the assets at the right price to (asset reconstruction companies) and private investors who want to come which I think that's going to be key. We're going to be thinking about what kind of design issues might help with that. But we think something designed properly could help."