Newly appointed Reserve Bank of India deputy governor Viral Acharya, in his maiden speech after taking charge, came down heavily on the way lenders approached the problem of bad loans and set a timeline to resolve the issue.
For resolution of stressed assets, he suggested a private Asset Management Company (PAMC), which would be suitable for sectors where the stress is such that assets are likely to have economic value in the short-run, with moderate levels of debt forgiveness. Some of the sectors seeing heavy stress are metals, telecom, and textiles.
“In terms of timeline, the banking sector will be asked to resolve and restructure, say its 50 largest stressed exposures in these sectors, by December 31, 2017.
“The rest can follow a similar plan in six months thereafter,” he said at a function organised by the Indian Banks’ Association here.
Possibly a sixth of public sector banks’ gross advances are stressed, and a significant majority of these are in fact non-performing assets (NPAs), he said.
“The doubling of stressed assets is the case also for private sector banks, but their ratio of stressed assets to gross advances is far lower and their capitalization levels far greater.”
The other model he suggested is that of a National Asset Management Company (NAMC), which would be necessary for sectors where the problem is not just one of excess capacity but possibly also of economically unviable assets in the short- to medium-term.
Many banks suffered heavy losses in recent quarters as bad loans zoomed. He suggested ‘surgical restructuring’ to strengthen bank balance sheets.