NEW DELHI: Officials from the Finance Ministry and the RBI will meet next week to settle differences over bank recapitalisation and non-performing assets (NPA). According to finance ministry sources, the government wanted the RBI to go soft on NPAs in the upcoming Financial Stability Report (FSR). However, RBI has taken a stronger stand and recommended that the NPA problem be laid out transparently.
If the RBI has its way, the government will have to allocate more money to keep banks operational. It had earmarked Rs 20,000 crore this financial year for bank recapitalisation. The FSR report, which was scheduled to be released in the last week of December, has now been postponed to January. “There is some clarity required over the NPA issue. There will be a meeting next week after which the report will be released,” a finance ministry official told TNIE.
The RBI’s stance is evident in its report on banking trends in India for FY20 published recently, hinting at more money required for bank recapitalisation. “While the government has earmarked Rs 20,000 crore in the first supplementary, they may raise more resources from the market as an optimal capital raising strategy,” the report had suggested, It also warned that NPA levels may be misleading since they were largely driven by loan write-offs and cautioned that the asset quality may deteriorate sharply in the coming months.
Banks had written off a record high of Rs 2,37,876 crore in FY20, enabling banks to show lower NPAs. The central bank has warned in its report that the modest NPA ratio of 7.5 per cent at end-September 2020 “veils the strong undercurrent of slippage”.