Home >Industry >Banking >RBI’s Urjit Patel says PSU banks need to cut bad loans, calls for recapitalisation

Mumbai: Reserve Bank of India (RBI) governor Urijit Patel on Saturday said that public sector banks will need to take haircut on resolution of all stressed assets, raising the need for higher capitalisation.

“It it clear that PSBs will need to take haircut on current exposure and resolution plan agreed within or outside the Insolvency and Bankruptcy code (IBC). Higher provisions requirement will affect the capital position of several banks. This will necessitate higher recapitalisation of these banks," said Urijit Patel.

Speaking at the National Conference on Insolvency and Bankruptcy, the governor added that the government and RBI are in discussion to prepare a package of measures which also includes additional capital infusion by the government.

“The measures will include a combination of capital raising from market, dilution of government holding, additional capital infusion by government, merger with strategic fit and sale of non-core assets," he said.

The regulatory or rather the economic challenge in dealing with the NPA issue gets accentuated when seen against the capital position of some of the banks, particularly public sector banks.

Gross NPA ratio of the banking system at 9.6% and stressed advances ratio at 12% as of March 2017 on the back of persistently high ratio in the past few years, is indeed a matter of concern, he added.

Governor Patel highlighted the need for swift time bound resolution or liquidation of stressed assets will be critical for de-logging the balance sheet and for efficient reallocation of bank capital.

He also lauded Sebi’s decision of mandatory disclosures within a day of default will help improve the credit culture.

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