Raising concern over rising bad loans at some banks, RBI Governor Raghuram Rajan on Thursday said there was no danger of any financial crisis but it may be early to declare that the worst was over on the NPA front.
"I would not be prepared to make that statement today only because you see a variety of problems across banks. Some banks have managed to bring down their bad loan positions, for others it is still increasing," Rajan said.
He was replying to a query on whether the worst was over with regard to Non-Performing Assets (NPAs) in the banking system.
"I would be more confident when there will be a uniform sort of series of results across the banks," Rajan told reporters after a central board meeting of the RBI in Benaulim, Goa.
He, however, sought to undermine the concerns, saying, "if the question is whether are we in the danger of a financial crisis? The answer is no!"
He further said that he is more worried about the losses to taxpayers and the effects on banks' functioning due to their rising bad loan levels.
The Governor said resolution of NPAs will be possible only with higher economic growth, which he termed as "slow" and the actions which the banks take.
"Combination of action by banks as well as growth tend to restore bank health. A slow recovery is underway, I think it will help," Rajan said. It can be noted that bad loans are on the rise and none of the banks in FY14 have reported any major improvement on the asset quality side.
A recent International Monetary Fund report said the domestic banking sector was in trouble with a whopping 36.9% of the country's total debt being at risk, which is among the highest in emerging economies.
The stressed assets ratio, which includes NPAs and restructured loans, of public sector banks has risen by an alarming 131 bps to 13.2% or over Rs 7,12,000 crore, in FY15 with their gross non-performing assets touching 5.17%. This is nearly 230 bps more than that of the system, according to the RBI data. This means that more than 8% of the advances were restructured in FY15.
Stressed assets were 11.02% in FY13 and 11.89% in FY14. As of March 2015, while gross NPAs rose to 4.45% for the system as a whole, net NPAs also climbed up to 2.36%, shows the RBI data.
Earlier this week, rating agency Crisil had warned that the asset quality woes will rise 20 bps to 4.5% this fiscal to Rs 4-trillion, rising by Rs 60,000 crore in the current fiscal.
On Thursday, RBI deputy governor SS Mundra also concurred saying this is not the definite time to make a concrete assessment on the NPA situation and there has to be a consistency in the numbers reported by banks.
"I think we need to see the consistency over a period of time and across a larger segment. The RBI has initiated a number of measures in this direction, some of them are bearing results, others are work in progress. "There are indications that there will be a slow pick-up in growth. Once these two things converge in a sizeable measure, then that would be the time to make a definite statement," the commercial-banker-turned-central banker said.
To a question from PTI on the alleged misuse of the 5/25 scheme by some banks, by increasingly restructuring loans to infra companies, Mundra said, "I think it would be unfair to presume that this scheme is being put to misuse because the system is so designed that there are enough checks and balances... There are enough control points built into this scheme. "I think most of the provisions of the 5/25 scheme are fairly clear. We have been hearing something about the NPV method, and banks are seeking some clarification... we will duly examine them," Mundra said.
The 5/25 scheme, introduced late last year, refers to letting banks restructure long-term loans to infra companies to restructure loans every five years for the next 25 year so that lenders can ward off asset liability mismatches on one hand and borrowers also are in a better position to service their debts with better cash flows.
In such restructure, banks need not set aside more money towards provisioning but only standard provision. But analysts have been saying that the scheme would allow banks to avail of this facility more often to protect their bottom lines.