A series of measures initiated by the government -from capital infusion to governance-related changes and tackling bad debt -would help staterun banks tide over a rough patch, financial services secretary Hasmukh Adhia said, adding that it would take some time for the results to show.
The low-profile bureaucrat said it may take a couple of quarters for non-performing assets to show a declining trend. “There are two issues -the RBI has its norms on provisioning and banks are following the rules, resulting in higher provisions. Two, credit growth has been slow and at the same time banks are facing stress. The numerator is going up and the de nominator is not changing so the gross NPA is seen to be higher,“ he said after the government announced a Rs 70,000-crore recapi talization plan.
“Some banks have done well but it may take a couple of quar ters for the reduction to begin. It will de pend on the overall growth rate, credit growth and good monsoon. All this good news has to come,“ he said, striking a cautious note.
The recapitalization plan is meant to aid banks, including lenders which have low capital adequacy ratio. “Of the Rs 20,000 crore, Rs 10,000 crore will go to banks which need extra buffer since their capital is on the margin. This will ensure that the operations of banks, which fulfill niche requirements of SMEs and agriculture, are not paralyzed. The remaining Rs 10,000 crore will be given to make strong banks stronger. The big banks will take the lead so that they can pursue greater credit growth so that the economy doesn't suffer. Last time, when we said we will give money only to good banks, it created a lot of problems in the market as people thought weak banks will be allowed to die. That's not the case -we don't want them to die,“ Adhia said.
He also said that the government will measure the performance of bank up to December before allocating the remaining Rs 5,000 crore.“It will be linked to performance. We will measure the performance up to December in terms of improvement in their asset quality and other parameters.“
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