Mumbai: Having prodded banks into classifying a large chunk of their stressed assets as non-performing assets (NPAs), the Reserve Bank of India (RBI) has urged them not to slow the process of recognising NPAs even after the asset quality review (AQR).
“Banks should not now bring any slowdown in the clean-up exercise which they are doing. Even if the required classification and provision happens, I’d strongly urge that banks should continue to keep aside money, keep on improving their PCR (provision coverage ratio) till it reaches a strong percentage," S.S. Mundra, deputy governor of the central bank, said in a speech on Friday.
RBI had conducted an AQR in December wherein it asked banks to label visibly stressed assets as NPAs and make appropriate provisions. Lenders were told to conclude making provisions for these accounts by the quarter ended March.
Following the AQR exercise, the provisions and bad loans of banks more than doubled and many lenders reported losses for the December quarter. The aggregate net profit of the 39 listed banks fell 98% to ₹ 307 crore in the December quarter from ₹ 16,806 crore in the year-earlier period.
The 24 public sector banks were the worst performers, having reported an aggregate loss of ₹ 10,911 crore in the December quarter compared to a profit of ₹ 6,970.8 crore in the year-ago quarter.
Such was the surge in bad loans that provisions towards these wiped out the profits of 12 out of the 39 listed banks.
For some public sector lenders, the situation worsened in the March quarter. Punjab National Bank reported the biggest quarterly loss in banking history after the lender labelled nearly 13% of its advances as bad. Its provisions surged by 173%, leading to a loss of ₹ 5,367 crore.
So far, out of the 30 listed public and private banks that have declared their numbers for the fourth quarter of fiscal 2016, 11 banks reported a loss for the said quarter and all of them were state-owned. The aggregate net loss of these 11 banks for the fourth quarter of fiscal 2016 was ₹ 48,425 crore.
Mundra on Friday said that banks must focus on strengthening their balance sheets and avoid focusing on short-term profits and dividends.
“If you keep on declaring profits, you pay taxes and give dividends. I think the better idea would be to strengthen the balance sheet rather than getting diverted by these short-term motives," he said.