Recovery seen as NPAs dip

Mumbai: There is nothing like feel-good news on New Year eve. The harbinger of the good tidings is RBI Governor Shaktikanta Das who said on Monday that the banking sector is on “course to recovery.”The assumption is rooted in the discovery that afflicted non-performing assets are receding. However, there is a rider: State-run lenders need reforms in governance.

The weaker ones among the public sector banks, especially need to be supported through recapitalisation, the Governor has said in his foreword to RBI’s half-yearly financial stability report. Das took charge earlier this month after the sudden exit of Urjit Patel.

He pointed out that for the first time in three years, there is a dip in the gross NPA ratios; this is to be seen in tandem with the improving provision coverage ratio, which is the ability of a bank to withstand stress.

According to the FSR, gross NPAs ratio declined to 10.8 per cent in September 2018 from 11.5 per cent in March 2018, while for She state-run lenders, the same improved to 14.8 per cent in September 2018 from close to 15.2 per cent in March 2018.

Under the baseline scenario, the GNPA ratio of all banks may come down to 10.3 per cent by March
2019 from 10.8 per cent in September 2018, the report said. The immense effort put in by the stakeholders so far is required to be complemented with substantive reforms in governance and oversight regime, supported by recapitalisation of weak PSBs.

Das said in comments, which come days after the Centre committed an additional Rs 41,000 crore in FY19 for recapitalisation. (Eleven of the 20 state-run lenders are under the prompt corrective action framework, which restricts their normal lending and is a bone of contention between the conservative regulator and a government that will be facing elections in a few months.

Das also touched on the troubled non-bank lending sector, saying that the non-banking finance companies need to be more prudent on risk-taking and also underlined the need to rebalance excessive credit growth, especially the one funded by short term liabilities.

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