Speaking at the Banking Summit organised by the Confederation of Indian Industry (CII) in Mumbai, Rajan said poor project evaluation, extensive project delays, poor monitoring, cost overruns and the effects of global overcapacity on prices and imports have resulted in the deterioration in the bank loans.
Band-aids are not sufficient and deeper surgery is needed to clean up the balance-sheets of banks, according to the Reserve Bank of India governor Raghuram Rajan.
Speaking at the Banking Summit organised by the Confederation of Indian Industry (CII) in Mumbai, Rajan said poor project evaluation, extensive project delays, poor monitoring, cost overruns and the effects of global overcapacity on prices and imports have resulted in the deterioration in the bank loans.
The Asset Quality Review (AQR) initiated by the RBI which is hitting the profits of all banks was necessary, he said, to put in place a mechanism for improving the health of the Indian banking system. Expressing his confidence that Indian banks will emerge stronger from the AQR process, the RBI governor said that India needs much healthier banks to strengthen and support higher economic growth.
"While we should not underplay the dimensions of the task, we should be confident that it is manageable and that the government and the RBI will do what it takes to make sure that banks are able to support the tremendous growth that lies ahead," Rajan said.
He said there are two polar approaches to loan stress, first is the apply band-aids and keep the loan current and hope time and growth will set the project on track. Sometimes this works. But most of the time, the low growth that precipitated the stress persists. An alternative approach is to try to put the stressed project back on track rather than simply applying band aids. This may require deep surgery.
Also addressing the CII Summit earlier in the day, S S Mundra, deputy governor, RBI, said the impaired assets in the banking system (Gross NPAs added with restructured and write-off assets) have risen sharply to 17% as at the end of second quarter of FY 2015-16. However, the problem was not uniform across public sector banks (17%), private banks (6.7%) and foreign banks (5.8%) as well as across sectors. He said it was contrary to popular perception that medium scale industry represented the highest levels of stressed assets as against the large scale industry.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
 "Raghuram Rajan")
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}