NPA overhang may go in first half of next year: SBI – The Hindu BusinessLine

The State Bank of India expects the NPA overhang in the banking sector to “dissipate in the first half of 2019-20,” said the bank’s Managing Director (GB & S), Dinesh Kumar Khara.

Speaking here at a function organised by United Way, Khara said Sashakt Asset Management Company, the newly-formed asset management company for resolution of stressed assets, would help in the resolution of “about a thousand assets worth about ₹3 lakh crore”.

He also observed that with the bad-loan problem getting solved, many public sector banks would come out of the PCA framework (a reference to ‘prompt corrective action’, a set of RBI rules that troubled banks should follow in order that they don’t go bust).

As a result, banks would be in a position to lend more, which would help economic growth.

The banking sector started experiencing stress after the deceleration in demand in 2016.

Impact on balance sheets

However, the Asset Quality Review (AQR) exercise and the RBI circular of February 2018 (which mandated insolvency proceedings for debt default beyond 180 days) accelerated the stress on bank balance sheets. Deposits and advances moderated and banks were pulled into losses, Khara said.

NPA ratio crossed the 11-per cent mark in 2018, and only after the Insolvency and Banking Code came into force could the banks channelise their energies towards recovery of loans

Khara said that the AQR exercise (which looked at how good each loan asset was) was “a great learning opportunity for the banking system”.

They could understand what risks they had undertaken without really measuring them.

However, he added that “the strong revival in credit growth witnessed in the second half of 2018-19 suggests that an overall improvement in the health of the banks is on the cards.” On the rupee depreciation, Khara observed that the fall in the value of rupee against the dollar was rather surprising considering that the Indian economy has been growing consistently in the last five years and the FDI inflow has been good — around $30-35 billion a year — in the four years upto 2018. This perhaps indicate that the market gives more weightage to oil prices, he said.

He said that bond yields were also moving both ways, rising with increase in crude prices and also correcting.

Foreign activities

On the external front, Khara said that India would face headwinds from the trade war between the US and China and a ‘no-deal’ Brexit.

The waiver given to India for trading with Iran and the US troops withdrawing from Syria and Afghanistan would also have an impact, he said.

via NPA overhang may go in first half of next year: SBI – The Hindu BusinessLine

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s