Page 46 - BANKING FINANCE JULY 2016

ARTICLE

knowledge of the borrowers, credit rating system, and
early warning system and so on.

RBI has given guidelines relating to infrastructure and core
industries ( 5:25 refinance scheme) and Strategic Debt
Restructuring (SDR) to tackle stressed assets more effec-
tively. Though RBI has taken number of measures to re-
duce the level of the non performing assets the results is
not up to the expectations.

The dirt has begun to come out in large chunks. It is grim - To improve NPAs each bank should be motivated to intro-
the stressed assets of banks are at 11.3%, which means that duce their own precautionary steps. Before lending the
the capital they have is not enough to cover the loss of value banks must evaluate the feasible financial and operational
of their assets. State-run bank's reluctance to lend is re- prospective results of the borrowing companies. They must
flected in the credit numbers. Government bank's credit evaluate the business of borrowing companies by keeping
growth slowed to 6.7% in December last, from 19.1% in in mind the overall impact of all the factors that influence
the same month in the year 2013. the business.

In the December quarter, of the 40 listed banks, 10 banks But, how big is the NPA problem at this stage and what is
had gross bad loans of more than 8%, while 22 banks had the cost to economy on account of this?
in excess of 5%. In a matter of 40 days, they lost more than
Rs. 1.8 lakh crore in market capitalisation. Yes, there may Under current norms, banks need to set aside money against
be a few more quarters of bad numbers. There may be a bad loans in the form of provisions. Banks take a hit as they
lot more companies that should be declared NPAs but have need to provide for this chunk, in turn, spiking up their capi-
not yet been declared NPAs. Companies may have operat- tal requirements. In the case of state-run banks, the bur-
ing profits which are much lower than what are needed to den to feed these banks is on the taxpayer; since govern-
cover their interest. ment is the owner of these banks.

A journey ahead towards reforms The government has promised to infuse the needed capital
in state-run banks (it has provided Rs 25,000 crore in this
The RBI has tried to develop many schemes and tools to year's budget). But, the burden can grow multifold if the
reduce the non performing assets by introducing Framework economic activities do not pick up on the ground. But this
for Revitalising Distressed Assets in the Economy, a detailed may well be a journey that could end up happily. Let us hope
Guidelines on Joint Lenders' Forum (JLF) and Corrective what is happening now is good in the long term for the
Action Plan (CAP), internal checks and control scheme, re- banking sector and for the economy, if the problem is be-
lationship managers as stated by RBI who have complete ing addressed in a focussed manner and within a defined
time-period. Once it's done, the outcomes will be very posi-
tive for the PSU BANKS and our economy. T

PFRDA gives nod for Govt. staff to select fund managers

Pension Fund Regulatory and Development Authority has granted "in-principle" approval to a proposal of providing
choice to government employees to select their pension fund managers. Stating this in a written reply in Rajya Sabha,
Minister of State for Finance Jayant Sinha said the move would bring parity with other subscribers as the subscribers
under the National Pension System (NPS) for the private sector are already enjoying the choice. Choice of pension
funds would create competition amongst the pension funds to compete for the corpus and offer better performance
or returns to subscribers. "The enhanced size of the market will also attract more players in the fund management
space leading to greater specialisation, risk diversification, risk management and enhanced governance standards...."
he said.

46 | 2016 | JULY | BANKING FINANCE

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