Expect banks to clean balance sheets by March 2017: Raghuram Rajan

Mumbai: As banks reel under huge bad debts, RBI Governor Raghuram Rajan on Tuesday said steps taken by the central bank and the government should help lenders clean up their balance sheets by March 2017.

Rajan said banks have been given more powers and flexibility to deal with the bad loans, which have crossed 6% as of June quarter.

The gross NPA of the public sector banks rose to 6.03% as of June 2015 from 5.20% in March 2015.

According to domestic rating agency Icra, total stressed advances (NPAs plus standard restructured accounts) rose to 10.7% as of September 2015 and is likely to settle down at 10.3% by March next.

“We hope that over the span of next year… say by March 2017, a full clean-up will have been done by banks… the idea is to put the real assets back on track with whatever needs to be done,” Rajan told reporters at the post-policy briefing.

“The first step was with things like 5:25, SDR, with bringing in new promoters, among others. Given that banks have more powers now, we can now be a little more careful about recognition, and the first step was to do away with the forbearance starting April 1, 2015,” he said.

“We are in constant dialogue with banks on a number of issues, including the assets on their balance sheets and we are talking to them about what is being done under the 5:25 scheme, and others. We have given a number of facilities to banks to improve their asset quality,” he said.

The Governor said the central bank and the government are very concerned over bad loans and expressed hope that “going forward these additional powers as well as the additional recognition that the banks will be doing will clean up the balance sheet in a significant way so that banks would be in a position to grow and lend.

“That is something that we are fully engaged in right now. We hope that the outcomes will be visible soon. Our next step is to make sure that what should be classified as ‘A’ is classified as ‘A’ and not ‘B’, and we are in constant dialogue with banks. We are also looking at how some of these existing facilities are used to make sure that we are not kicking the can down the road,” Rajan further said.