NEW DELHI: The Reserve Bank of India (RBI) is likely to push for resolution of bad loans worth Rs 8 lakh crore by FY20, an Assocham study said. This, according to Assocham’s ‘NPAs Resolution: Light at the end of tunnel by March 2019’, could bring down the non-performing assets and improve the financial health of banks.
“So, it should be safe to assume that the non-performing assets mess would largely be resolved by the first quarter of financial year 2019-20,” noted the study. Assocham said this would be helped by a combination of factors – turnaround in the economic cycle as well as the resolute steps by the government and RBI to fix the issue.
NPAs are a drain on the health of banks especially public-sector banks. For example, 27 PSBs collectively made an operating profit of Rs 1.5 lakh crore in 2016-17, but after allowing for the provisioning for bad loans, among others, net operating profit slipped to a paltry Rs 574 crore.
If balance sheet numbers are anything to go by, banks have no capacity to do fresh corporate lending that is necessary for pushing subdued private sector investment, the study noted.
Assocham Secretary General D S Rawat said the 16-month Asset Quality Review exercise that ended in March 2017 pulled out NPAs from the closet and after this deep surgery strong medicine was required to quickly heal the system.
“So, somewhat bitter medicine came in the form of the Ordinance promulgated by the President in May. The government gave wide-ranging legislative powers to RBI to issue directions to lenders to initiate insolvency proceedings for the recovery of bad loans that have reached unacceptably high levels,” he said.
Banks were reluctant to resolve NPAs through settlement schemes or sell bad loans to ARCs for fear of being accused of favouring some companies. With the institution of the oversight committee, bankers should get some cushion against such fears.