Admitting state-run banks will need to take some haircut on their exposure to some of the stressed assets, Reserve Bank of India Governor Urjit Patel has called for their recapitalisation to strengthen balance sheets.
As of March 31, the gross NPAs of the banking system stood at 9.6 per cent and stressed advances ratio was at 12 per cent, which is a matter of concern, said Patel. Around 86 per cent of the gross NPAs are accounted by large borrowers (those with aggregate exposure of Rs 5 crore or more).
The RBI had in June identified 12 large accounts to be referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code (IBC).
The governor said a swift time-bound resolution or liquidation of the stressed assets would be critical for declogging the bank balance sheets and efficient reallocation of capital. The government and the central bank are in dialogues to prepare measures that will allow state-run banks to shore up capital.
"The measures could include a combination of capital raising from the market, dilution of government holding, additional capital infusion by the government, merger based on strategic decision and sale of non-core assets," informed Patel. Banks will have to incur some losses on some of the stressed assets, even as they are taken up for speedy resolution under the IBC.
"The success and credibility of all the resolution efforts would be critically contingent on the strength of public sector bank balance sheets to absorb the costs. It is clear that PSBs will need to take haircuts on current exposures under any resolution plan agreed within or outside the IBC," said Patel.
Ratings agency Crisil recently said banks may have to take a haircut of 60 per cent, worth Rs 2.4 lakh crore, to settle 50 large stressed accounts with debt of Rs 4 lakh crore. These 50 companies are from metals (30 per cent of the total debt), construction (25 per cent) and power (15 per cent) sectors and account for almost half of the more than Rs 8 lakh crore NPAs in the banking system as of March 31, it said.
It is estimated that banks may have provisioned for 40 per cent of this exposure.
