Banks have cushion for bad loans: RBI

The Reserve Bank of India (RBI) on Friday said the asset quality of Indian banks has declined in recent times on uncertain economic conditions but lenders have enough capital to take care of the situation.

The Reserve Bank of India (RBI) on Friday said the asset quality of Indian banks has declined in recent times on uncertain economic conditions but lenders have enough capital to take care of the situation.

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“Yes, there is pressure on asset quality and at the same time we have enough capital to sustain that,” said Anand Sinha, deputy governor, RBI on the sidelines of a financial management summit.

Sinha said that debt restructuring is a very legitimate way of dealing with stress but advised banks to be prudent and do it only when needed. Loan restructuring is the process of diluting the original terms of loans which include lower interest rate or extension of tenure.

“CDRs (corporate debt restructuring) are on a rise and they do represent the stress in the system... credit administration needs to be improved so that these things can be controlled,” he said.

Net (non-performing assets) NPAs of the system has crossed over 3.5% in 2011-12 from 2.3% in the previous year, while the CDR book has crossed 5.7% of the total loan book of banks at the end of the June quarter.