91% of the public sector banks surveyed in the first half of the current calendar year have reported rise in their NPA levels, according to a finding by FICCI-Indian Bank Association Survey for the January-June period.
The respondents feel that the amendment of Banking Regulation Act along with the Insolvency and Banking Regulation Code (IBC) will help in resolutions of stressed assets and have suggested easing of provisioning norms for such assets referred to IBC.
A staggering 91% of respondent public sector banks reported a rise in NPAs, with the remaining 9% reported no change. 71% of private bank respondents reported an increase in NPAs. As far as foreign banks are concerned, half of the respondents indicated an increase and other half indicated a decrease in NPAs, said the fifth round of the FICCI-IBA survey.
A total of 20 public, private and foreign banks participated in the survey. These banks together represent 64% of the banking industry, as classified by asset size.
Bankers were asked their views on consolidation of other Public Sector Banks post SBI merger, to which the responses have been largely mixed and opined that on consolidation, moving cautiously is the best way forward and the more crunch issue of paring the NPAs should be given more importance at the moment.
“While some banks are supportive of moving ahead with consolidation of banks in current times, others have expressed concerns related to timing and have suggested that priority should be given to resolve the problem of mounting NPAs and measures to raise capital”, the Survey said.
The respondent banks as per the Survey, wanted special dispensation to be provided in provisioning norms for the cases referred under the IBC. This will incentivize banks to refer more cases under IBC, they said.
RBI may consider a few changes in S4A scheme (i) to reduce percentage of sustainable level of loan up to 40% , and (ii) to extend repayment terms, subject to maintaining the NPV post resolution, said the bankers.
As per current rules of S4A, the sustainable debt can not be less than 50% of the current funded liabilities’ if an enterprise is to be eligible for S4A.
The banks in the Survey want the definition of ‘qualified buyers’ be widen to so that the retail investors may also be allowed to deal with security
The RBI had moved ahead on a proposal to create differentiated banks for providing wholesale and long-term financing (WLTF) by floating a discussion paper on the subject in April this year. Bankers were asked to present their views on the recently released discussion paper of RBI in WTLF Banks. Majority of the respondent banks believe that establishment of WTLF Banks will be positive for the economy. But they wanted some modifications as well.
“Higher capital requirement and availability of long term funding for WLTFs would be one of the major factors determining creation of such institutions Licenses for such institutions should be issued cautiously by the regulator; only those entities should be selected that are able to demonstrate the ability to build these specialized banks and are adequately capitalized”, said the respondent banks in the FICCI-IBA Survey