The increased powers given to the RBI to clean up asset quality, and to intervene in banks at an earlier stage when risks build, represents an important positive step toward ensuring a healthy banking system in the future
Mumbai : Hailing the ordinance empowering the RBI to initiate insolvency process against top defaulters, international ratings agency Fitch Ratings has said India was making concerted efforts to tackle the festering issue.
“Recent regulatory actions in India suggest the authorities are making a more concerted push to tackle banks’ bad loan problems. We believe that asset resolution will be a dominant theme in the sector over the next few years,” Fitch Ratings said in a statement on Thursday.
“The increased powers given to the Reserve Bank of India to clean up asset quality, and to intervene in banks at an earlier stage when risks build, represents an important positive step toward ensuring a healthy banking system in the future,” the statement said.
In the short term, this was likely to create provisioning costs that would mean continued pressure on bank profits, and it was possible that further losses would push some weaker banks closer to breaching minimum capital requirements, unless they received preemptive capital injections.
“The government’s recent step to enhance the RBI’s powers appears to be a signal to the regulator to assume a more interventionist approach to directly tackle banks’ slow progress on bad loan resolution,” it said. “RBI direction that pushes banks into initiating insolvency processes against borrowers could help to break a deadlock caused by concerns among bank officials that decisions on troubled borrowers will attract investigation by anti-corruption agencies,” it said.
