Bad loan not posing risks to economy, says RBI
It thinks that the problem is coming down and that banks have kept adequate provisions against the bad assets
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.
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."