Parliamentary Panel raps RBI over NPAs
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It said high bad debts have raised serious questions over the credibility of the mechanism to deal with an issue that is threatening the stability of the banking system. The parliamentary standing committee on finance said it was not happy with the way the issue was being tackled.
In a report tabled in the Lok Sabha on Wednesday, the panel said RBI should not be a passive regulator but should exercise powers of punitive action against banks in case of defaults. The report said the panel was "constrained" to observe that the "RBI does not seem to have quite succeeded, as a regulator" in implementing and enforcing in letter and spirit its own guidelines on stressed loans.
"Mere issuing of guidelines by RBI does not seem to have yielded the desired results.... As the committee would not like the RBI to be a passive regulator when major lapses occur in banks, it would be in the fitness of things if RBI exercises its regulatory powers vis a vis banks to take punitive action in cases of default and to enforce their guidelines," the panel, headed by Congress member of Parliament M Veerappa Moily, said. Former prime minister Manmohan Singh is also on the panel.
The committee said RBI as a regulator should have its regulatory role well delineated and thus not have its director in the board(s) of the banks as part of their management, "as conflict of interest may lead to avoidable laxity".
As of September 2015, the net non-performing assets (NPAs) of public sector banks stood at Rs 2,05,024 crore, while the gross NPAs were Rs 3,69,990 crore, the committee pointed out. "Such high incidence of NPAs obviously raises serious questions on the credibility of the mechanisms to deal with NPAs and stressed loans as such, even as certain estimates indicate that gross NPAs may touch Rs 4 lakh crore by the end of this fiscal year," said the report.
What Pannel Said....
- Early and timely intervention and remedial measures necessary to stem rising NPAs
- Stressed assets ratio for the system as a whole exceeded 11% at the end March 2015, against 10% in March last year
- NPAs expected to be higher this financial year
- Specially empowered committees should be set up to continuously monitor the status of large loan portfolios
- Accountability of nominee directors of RBI & ministry on bank boards as well as CMDs, MDs of banks should also be fixed in the matter
- Forensic audit should be made mandatory for specific class of borrowers
- A change in management must be made mandatory in cases of wilful default
The data cited by the report seemed to be older. According to rating agency ICRA, public sector banks reported a rise in gross non-performing assets from 5.6 per cent of gross advances as on September 2015 to 7.1 per cent as on December 2015. Public sector banks' gross NPAs were expected to worsen in the last quarter of FY16 on account of an asset quality review exercise, ICRA said.
RBI had issued a fiat for accelerated recognition and provisioning for weak assets. In fact, the asset quality of banks deteriorated in the third quarter due to this fiat, called asset quality review.
The committee noted with "deep concern" that in spite of various measures taken by the government and RBI, "the NPA problem confronting the financial sector and threatening the stability of the banking system seems far from over".
It said that bank balance sheets continued to remain under pressure and recent quarterly results of banks were a "grim reminder" of the situation, with most banks reporting a sharp dip in profits.
"On the one hand, the country's economy is growing fast and competing with economic superpowers and, on the other hand, the rising trend of NPAs has the potential to damage this growth story," it said. (PTI - Business Standard)
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