Page 33 - Banking Finance September 2018

COVER STORY

STRESS

ASSETS AND

ITS

RESOLUTION

Stress in Banking Industry technological and regulatory environment are creating a
perfect storm-like condition for the Indian banking sector.
The slowdown in economic growth is primarily caused by the
Some banks are under the Reserve Bank's Prompt Corrective
stress on the banking sector's balance-sheet, especially of
Action (PCA) having failed to meet asset-quality,
public sector banks. On analysis of the Reserve Bank's data,
capitalization and/or profitability thresholds; others meet
we found the stress in bank assets has been mounting since
these thresholds for now but no one can give a guarantee
2011 and has materially crystallized in the form of non-
of other banks and their asset quality which may bring them
performing assets (NPAs). Stressed assets on the books of
under the ambit of PCA in near future. When bank balance-
Indian banks are getting higher than their net worth; the
sheets are so weak, they cannot support healthy credit
situation is most acute for public sector banks where
growth.
stressed assets are now about 50 percent higher than the
total net worth of these lenders.
Under-capitalized banks have capital only to survive, not to
grow; those banks barely meeting the capital requirements
A high level of stressed assets; and dramatic changes in the
will want to generate capital quickly, focusing on high
interest margins at the cost of high loan volumes. The
About the author resulting weak loan supply, the steady decline in loan
advances, and the low efficiency of financial intermediation,
have created significant headwinds for economic activity.
B. B. Lenka
Chief Manager, Faculty
Union Bank of India Staff College Concept of Stressed Assets:
Bangalore Now stressed assets are getting increased attention as the
trend of deteriorating asset quality has emerged as a big

BANKING FINANCE | SEPTEMBER | 2018 | 33