Should India create a ‘bad bank’ to battle NPA’s?

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The subject of non-performing assets (NPAs) has caused sufficient worry for the banking system, especially when restructured assets are also included. The number of 11.5% is quite scary and needs to be addressed.

One idea which is not really a bad concept is the concept of a ‘bad bank’. As the name suggests, such a bank will buy bad assets or NPAs from banks and then get around to reviving them or disposing them off. They will be bought at a lower value and could reside in the books of the bad bank until they are sold or even be returned to the bank once they cease to be delinquent.

In fact, it does resemble the outcome of the Bankruptcy Bill, with the difference being that instead of banks getting together and deciding, the assets are offloaded to this new entity and thenceforth it will be business-as-usual for banks.

What exactly is the idea?
The objective is to have banks clean up their balance sheets. If they are permanently selling their bad assets, they write off the loss in year one, and then restart on a clean slate. The capital adequacy ratio improves as they are shrinking their balance sheets, and the level of NPAs and the provisions that have to be made come down sharply. This appears to be a panacea for public sector banks (PSBs) which are currently the focus of attention. Once the balance sheets are cleaned, then they can raise capital as they become stock-market worthy.
The issue is as to who will start this bad bank? Such a bank needs share capital and will have to raise funds to buy these assets and pay off the banks. One idea is to have the government start such a bad bank.

This is different from capitalising a PSB as it involves actually purchasing the assets and then trying to realise the best value. In case of capitalising the bank, one is only covering the liabilities side and not addressing the issue. When assets are bought, it directly lowers the delinquent assets and is hence superior.
As the problem has arisen due to a large-scale clean-up operation of the Reserve Bank of India (RBI)—and the banks affected the most are government-owned institutions—it makes sense for the government to buy the assets, which, in a way, is analogous to a loan waiver scheme in a modified form, as the recoveries will accrue to the government. Having the private sector create a bad bank is similar to an asset reconstruction company (ARC), which currently does not have the financial strength to handle these large amounts.
The creation of bad banks has been pursued after the Asian crisis in 1997 in the East Asian economies. The model has involved an outright purchase, which is called the Swiss approach, and a repurchase option, which is the German way of doing things. The idea is nonetheless compelling because it addresses the issue in a full-hearted manner. There, however, have to be conditions attached to such a bank being crafted which buys bad assets.
The first is that it should be based on a criterion as any such exercise creates a moral hazard which should be eschewed. Second, there have to be strict performance criteria for the banks selling such assets. This can be through a multi-stage approach where these assets are bought piecemeal by the bad bank based on how future incremental assets perform. Third, the criteria for buying assets should be transparent and a pecking order must be drawn up where probably the restructured assets get priority. Last, a competitive approach should prevail among the banks so that they work hard to qualify for the sale of bad assets to the bad bank. This, in fact, will ensure better governance standards too.
We certainly need to attack this problem and, given the scale, the government has to play a role here. The challenge is to structure it in such a way that moral hazard is avoided, which is also the issue with all loan waiver schemes. Fiscal support is a corollary that has to be provided for in the budget and has to be done. Similar to how the UDAY scheme involves state governments working out ways to reduce losses of state electricity boards, the Union government has to take on this responsibility to address the bad assets created by banks owned by them. This would be the ultimate justification for the same.
This clean-up operation will make banks stronger and in a position to lend money when the economic cycle seems to be on the verge of looking up. If it is not done, the regulatory factors could constrain their lending ability. Therefore, this option should be explored and implemented.

A national ‘bad bank’ to cleanse the balance sheets of PSBs is actively being considered by the government, according to reports. This body would take on PSBs’ bad loans in exchange for government debt, freeing them to lend more and promote growth. In principle, separating bad loans from good ones allows a bank to derisk, deleverage, regain investors’ confidence and improve its market value; a bad bank specialises instead in maximising the value of the troubled assets through recovery, sales and so on. But, in practice, achieving success with a bad bank isn’t easy due to numerous tradeoffs related to costs, capital, profits and viability of the business. In India, choices could be both complex and controversial, given the role of the government as the owner of PSBs and its support and involvement in the bad bank.

The organisational structure of the proposed body is not yet known, but the structuring of incentives, which is linked to who has a major say, is crucial. Different varieties exist in countries like Germany, Ireland, the US, Sweden, etc. Reportedly, RBI’s concern is that a majority stake of the very banks whose NPAs are to be bought could create a moral hazard. This is well-justified because key decisions relate to pricing and the eventual management, i.e. recovery, sales, restoring market value, etc, of these bad assets. Such a body necessitates specialised professional skills that can mean ruthless business decisions too.
A couple of problematic issues can be imagined for India. One, the valuation or price at which bad loans are bought from PSBs; two, the implications for public debt. Both are intertwined in a delicate political economy context. If bad assets are bought from lenders at too high a price—say, at a book value or without any discount—PSBs benefit, but the public exchequer or taxpayers bear the losses (it is evident here what a majority say by the banks on the other side, bad bank, implies). In the event NPAs are offloaded with a sharp haircut, PSBs would have to immediately book large losses, and their capital takes a hit; the government would incur a huge expense in purchasing the stressed assets (if providing capital support to the bad bank) and recapitalising PSBs on the other side, with the hope to recoup these costs from future sales, recovery or improved market values of what at present are troubled assets. Were a private bank’s assets to be acquired so, deep discounts would be a positive because buy-cheap-sell-dear is likely to fetch higher profits in the future.
There could be many agreeable price points in between these extremes, but the key point is that price discovery is inherent in the idea; finding just that price that balances economic sense with public acceptability in view of the state-owned nature of lenders could be complex, troublesome. Discount pricing can be a problem, especially if NPAs are offloaded at knock-down prices, but this is not matched by rigorous, professional overhaul. For what prevents recurrence? Controversies could also arise depending upon who the NPAs are eventually sold off to, at what price, who pockets the profits and so forth. And considering that many bad loans are linked with infrastructure, it would be quite tricky to mark down value of the assets to market prices. As observed from some mortgaged property auctions, banks are clearly reluctant to mark down prices.

Some of these issues are evident from observations like that of Uday Kotak of Kotak Mahindra Bank, which deals in stressed assets; he was reported to say that lack of convergence between lenders’ valuations of stressed assets and what his bank judged was a fair price was obstructing deal-making. It appears most of the assets backing banks’ loans are either viable or can be made so. In which case it isn’t clear as to how a separate, public-private body can do a better job. Far more could be achieved, and with greater efficiency, were the government to reduce its shareholdings below 51% instead. Transferring unwanted assets of all PSBs uniformly may end up keeping alive even those banks that are unviable; alternately, choosing could be difficult and quite likely meet with strong resistance.
Last, considering the immediate recapitalisation demands that would arise, public debt levels would be impacted. It is reported that the government is likely to reallocate some parts of the public sector balance sheet so as to not affect increases in public debt. But this must be transparent, free of moral hazard and not set any undesirable precedent for future governments to emulate. If at all the government creates a fund for stressed assets, it needs to draw a clear line for the extent of risk it will assume.

By Financialexpress

Yes Bank Q1 net profit up 33 percent on higher net interest income

Private lender Yes Bank has reported a 32.8 percent year-on-year rise in net profit in the June-ended quarter of FY17, beating market expectations. The earnings were led by a healthy growth in net interest income (NII) and other income. Asset quality for the bank weakened in the three-month period, compared to a year ago.

Yes Bank reported a net profit of Rs 731.8 crore in the first quarter of this fiscal, against Rs 551.2 crore in the year-ago period. Net interest income—the difference between interest earned and interest expended—stood at Rs 1,316.6 crore, up 24.2 percent from a year ago. Other income (non-interest income) rose 65 percent to Rs 900.5 crore in the quarter, compared with Rs 545. 2 crore in the year-ago three months.

Asset quality for the bank, however, weakened in the quarter. Gross NPA, at Rs 844.6 crore, rose 129 percent year-on-year and around 12.8 percent over the quarter ended March 2016. Gross NPA ratio stood at 0.79 percent in the June quarter. Net NPA ratio increased to 0.29 percent in the quarter, from 0.13 percent a year ago. At Rs 302.4 crore, net NPAs were 6.3 percent higher than the March-ended quarter.

Yes Bank’s managing director and CEO Rana Kapoor said: “There was continued resilience in asset quality,” in a media statement issued after the earnings were announced.

There was no sale to asset reconstruction companies (ARCs) in the quarter.

All banks are in the race to clean up their balance sheets and reduce rising levels of NPAs and stressed assets. The Reserve Bank of India (RBI), which has carried out its asset quality review (AQR) has told these banks to clean their balance sheets off these bad assets by March 2017.

The bank’s loan book continued to expand. Advances grew 33 percent to Rs 105,942 crore, compared with Rs 79,665 crore a year ago and deposits rose 28.6 percent to Rs 122,851.1 crore, data showed.

Analysts called the earnings positive. Kaitav Shah of SBICap Securities said with high profit growth driven by healthy net interest income and stable asset quality, the impact on the Yes Bank stock is likely to be positive. Yes Bank’s stock edged down 0.01 percent to close at Rs 1,200.10 on BSE after the earnings.

Private sector bank results likely to show impact of asset quality issues

Mumbai: June quarter earnings reports from HDFC Bank Ltd, Kotak Mahindra Bank Ltd and Axis Bank Ltd due on Thursday and Friday are expected to indicate asset quality conditions in the banking sector and throw light on the impact of a new interest rate regime. Private sector banks are expected to outperform their state-owned peers this quarter as well, analysts said.

According to a 11 July report from Motilal Oswal Securities Ltd, HDFC Bank is expected to report its usual 20℅ year-on-year net profit growth on the back of a healthy net interest income growth and lower operating cost from using technology for customer acquisition and expansion. Other brokerages also predicted strong net profit growth for HDFC Bank.

According to a 11 July report by PhillipCapital (India) Pvt. Ltd, HDFC Bank’s net interest income (NII) growth is likely to remain below its loan growth on expectation of sequential and year-on-year fall in yield on advances, which will reflect in net interest margin (NIM) numbers.

On 1 April, banks were required to introduce marginal cost based lending rate (MCLR), which requires them to set lending rates based on their marginal cost of funds rather than their average cost of funds. HDFC Bank has seen a steady drop in its lending rates over the last three months due to this. The private sector lender’s one-year MCLR is at 9.15℅, similar to that of larger banks like ICICI Bank and State Bank of India.

Kotak Mahindra Bank, which is also announcing its results on Thursday, will be doing so after a year of one-off benefits from its merger with ING Vysya, which was initiated in the April-June quarter last year.

“Operating expense is expected to decline sequentially owing to few one-off expenses. Profitability is likely to improve sequentially due to improved core operating performance,” Reliance Securities said in a report on 8 July.

However, Kotak Mahindra Bank’s slippages during the quarter are likely to be higher than the bank’s previous guidance. While announcing its results for January-March, the bank had said that it would target a credit cost of 45-50 basis points (bps) in 2016-17, against 82 bps in 2015-16.

One basis point is one hundredth of a percentage point or 0.01℅.

All eyes on Friday will be on Axis Bank’s stressed asset number and its guidance for the year ahead. In the last quarter of 2015-16, the bank had revealed a watch list of Rs.22,630 crore loans, aimed to bring transparency in the bank’s balance sheet.

According to Motilal Oswal, over the next eight quarters, about 60% of this watch list is likely to turn into the non-performing asset (NPA) category.

“We expect slightly higher proportion of slippages in 1HFY17, leading to higher credit costs (150bp annualized v/s 74bp in 4QFY16),” the Motilal Oswal report said.

Axis Bank, much like its public sector peers and ICICI Bank, had shown an increase in its gross NPA number in the six months between October and March, after the Reserve Bank of India (RBI) conducted an asset quality review (AQR).

Following this review, banks were required to report more accounts as NPA and provide more against stressed assets. The higher provisioning had impacted their net profit numbers.

By Livemint

NPA Provisions, Expenses Pull Down Axis Bank Profit 21%

Axis Bank today reported a steep 21 per cent decline in net profit at Rs 1,555.5 crore for the three months to June, roiled by a more than doubling of its bad loan provisions, higher operating expenses (opex) towards branch expansion and the resultant salary outgo.

“Decline in profit is driven by slippages from the watch list, which lead to a rise in both gross NPA as well as net NPA levels to 2.54 per cent and 1.08 per cent, respectively, in the reporting quarter.

“Another reason for the dip in profit is the higher salary outgo and investment into branches which led to a 23 per cent increase in operating expenses,” Deputy Managing Director V Srinivasan told reporters on a post-earnings concall late this evening.

He said the lower profit is due to tepid other income or fee income, which grew only 11 per cent in the first quarter ended June 30, to Rs 2,738 crore from Rs 2,298 crore a year ago.

On the rise in operating expenses, he said while the bank did not open a single branch in the first quarter of last fiscal, it has opened 102 branches in the reporting quarter, which has taken its headcount to 52,400 from 43,300 a year ago. From January this year, the private lender has opened 201 branches against 31 during the same period last year.

“But still we maintained our cost to income ratio at 38 per cent,” Srinivasan said.
Gross NPA in absolute term more than doubled to Rs 9,553 crore from Rs 4,251 crore as of end June. Of this, NPA provisions stood at Rs 1,823 crore as against Rs 1,046 crore a year ago and Rs 906 crore in the March quarter of last fiscal.

Chief Financial Officer Jairam Shirdharan said all the provisions, including an additional Rs 115 crore towards AQR accounts identified by RBI last December, have been met through the balance-sheet only and that nothing has been from the Rs 3,000 crore contingency buffer created in the March quarter.

In the March quarter, it can be noted that, the Shikha Sharma-led bank had tagged a whopping Rs 22,000 crore worth accounts into a special watch list and had warned that 60 per cent of this might slip into NPAs over the next eight quarters including the June quarter. And this does not include the AQR accounts. Of this total watchlist, 53 per cent accounts are from iron and steel and textile accounts.
Asked whether the bank expects any negative surprises in the second quarter from the watchlist, Srinivasan said, “No. We are also not revising our NPA outlook for the September quarter.”

“This 10 per cent additional slippages in the June quarter from the watchlist is as expected and I don’t see any negative surprises either in the second quarter.
“But since we don’t see any solid recovery in the affected sectors of steel, power and textiles, we are still sticking to our March quarter assessment that 60 per cent of the identified a little over Rs 22,000 crore may turn dud assets,” Srinivasan said.

Of this total watchlist, fund-based accounts are worth Rs 20,295 crore and the non-fund are of Rs 2,562 crore, he said.

On provisions, the Axis Bank Deputy MD said he sees provisions from AQR accounts coming down going forward as he sees no surprising spurt in bad loans.
Total income of the bank improved to Rs 13,852.1 crore as against Rs 12,234.41 crore in the same period last year. During the quarter, the interest income rose to Rs 11,113.9 crore from Rs 9,936.14 crore.

During the first quarter, the bank added Rs 3,638 crore in fresh slippages, which Srinivasan said, was expected. Of this, 92 per cent, or Rs 2,680 crore, came from the watchlist account that the bank had identified in the March quarter and are in line with its own assessment, he said, adding recoveries and upgrades stood at Rs 140 crore while write-offs stood at Rs 32 crore during the quarter.

Of the total NPAs, as much as Rs 2,911 crore came from corporate accounts while Rs 306 crore of slippages came in from retail and SME accounts, especially from the agri lending side of retail loan book, as well as a few accounts from healthcare and education sector, Srinivasan said.

But he was quick to add that there is no reason for any worries on the SME side.
“SME loan book constitutes 13 per cent of our total assets, or Rs 45,000 crore. We have not seen any stress in the sector as such and therefore we have no reason to believe that this sector per se is in trouble,” Srinivasan said in response to a question whether the SME sector is the next power and steel sectors for the lenders.

Yesterday, Axis Bank’s larger rival HDFC Bank also reported a spike in NPAs, primarily from its SME loan book.

He was quick to add that the slippages in the education sector is not from the education loan book, which is growing very healthy-having doubled last year alone, and so is the healthcare account.

Maintaining an 18-20 per cent advances growth for the fiscal, driven by refinance which was very good in the reporting quarter, he said in the June quarter its loan-book grew 21 per cent driven by corporate refinance (teleco, pharma, oil & gas); personal loans and credit cards. The unsecured book is worth Rs 15,000 crore as of June.

Shridharan said 80 per cent of new corporate loans were to A-rated companies, but admitted that most of the firms in its watchlist have slipped to BBB rating now.
The bank did not have any S4A accounts in the quarter but it had 4 SDR cases worth Rs 252 crore, of which one has already turned an NPA and it restructured Rs 790 crore worth from five accounts under the SDR scheme during Q1.

However, the bank did not sell any assets to ARCs.
Provisions also included Rs 51 crore towards the Punjab food scam account and Rs 142 crore worth towards three AQR accounts as it set aside the full provisions for them as against the incremental 15 per cent that RBI has mandated. Also there was Rs 71 crore provisions towards 4 SDR accounts.

The net interest income grew 11 per cent to Rs 4,517 crore in the April-June period from Rs 4,056 crore, while net interest margin stood at 3.79 per cent against 3.81 per cent a year ago.

Net advances grew 21 per cent, led by retail, which expanded 24 per cent and accounting for 41 per cent of net advances and followed by corporate refinance. Retail fee income grew 19 per cent, or 42 per cent of total fee income.
The bank’s domestic NIM slipped a tad to 40.4 per cent from 4.11 per cent a year ago.

Since the numbers were announced post-market hours, the Axis counter closed almost unchanged with a marginal negative bias at Rs 537.55 on the BSE, down 0.13 per cent.

Outlook India (By PTI)

HDFC Bank Q1 profit rises 20%, provisions & NPA remain higher

India’s second largest private sector lender HDFC Bank matched analysts’ expectations on Thursday with profit rising 20.14 percent year-on-year to Rs 3,239 crore. It was driven by other income, operating profit and slightly better-than-expected net interest income but higher provisions and tax cost limited profit growth. Net interest income, the difference between interest earned and interest expended, grew by 21.8 percent to Rs 7,781 crore in the quarter ended June 2016 compared with Rs 6,389 crore in year-ago period, supported by average assets growth of 20.2 percent and net interest margin, the private sector lender said.

Net interest margin sequentially increased to 4.4 percent from 4.3 percent. Deposits stood at Rs 5.7 lakh crore at the end of June 2016, a growth 18.5 percent compared with year-ago period while advances were at Rs 4.7 lakh crore, higher by 23.2 percent over corresponding period of last fiscal. Other income (non-interest income) rose by 14 percent year-on-year to Rs 2,806.6 crore, driven by fees & commissions (15.5 percent YoY growth) and gain on revaluation or sale of investments (up by 120 percent), the bank said.

Operating profit jumped 20 percent YoY to Rs 5,819.2 crore while operating expenses increased 19.2 percent to Rs 4,768.9 crore in April-June quarter. HDFC Bank said the cost to income ratio for the quarter was at 45 percent against 45.2 percent for the corresponding period of last fiscal.

Provisions for bad loans remained at elevated level, up 19 percent YoY and 30.8 percent QoQ to Rs 866.7 crore in Q1FY17. Asset quality slightly weakened during the quarter with gross non-performing assets (NPA) rising 10 basis points sequentially to 1.04 percent and net NPA by 4 bps to 0.32 percent for the quarter ended June 2016.

In absolute terms, gross NPA spiked 12 percent to Rs 4,921 crore and net NPA increased 13.1 percent to Rs 1,493.4 crore on QoQ basis. Total restructured loans were at 0.1 percent of gross advances as on June 2016. Capital adequacy ratio remained unchanged at 15.5 percent on sequential basis but declined 20 basis points compared with 15.7 percent in year-ago period.

Tax expenses increased sharply by 20 percent to Rs 1,713.55 crore in the first quarter of FY17 compared with Rs 1,426.2 crore in corresponding period of last fiscal. Total number of branches and ATM network stood at 4,541 branches and 12,013 ATMs at the end of June 2016, respectively, the bank said. At 12:17 hours IST, the scrip of HDFC Bank was quoting at Rs 1,230.50, down 0.13 percent after hitting a 52-week high of Rs 1,239.50 in early trade on the Bombay Stock
Exchange.

By Moneycontrol

NPA clean-up should have started much earlier: Rajan

Mumbai, Jul 26 () Outgoing RBI Governor Raghuram Rajan, who has ruffled industry for his strident bid to get the bank balance-sheets cleaned up, today admitted that the central bank should have carried out this exercise earlier.

“As with inflation, it was the duty of the central bank to press for bank clean-up earlier, when few among the public support the central bank’s activism,” he said, addressing the 10th Statistics Day conference at the RBI headquarters here. He also said the lenders were initially reluctant to implement the clean-up which started from December 2015 with RBI identifying 150 largest accounts which were facing problems in servicing their debt obligations.

“Fortunately, after an initial reluctance, banks have entered the spirit of the clean-up and some have gone beyond what was demanded of them,” he said, adding that it was “easy to ignore” the problem of loan losses hoping that it goes away “somehow”. Rajan said however that the scourge of loan losses “had a tendency to increase, get too big to ignore, too late to manage, and push the system into crisis”.

In late 2015, RBI came out with a list of over 150 accounts, which was pruned to 120 later, and asked all the lenders to recognise their exposures to those as non- performing assets or bad loans.It gave banks two quarters to recognise the losses and according to some estimates, the banks have taken a hit of Rs 70,000 crore to cover for the reverses.

Following this clean-up order, the banks, led by state-run ones, have reported close to 14 per cent or over Rs 8 trillion (Rs 8 lakh crore) of their assets as stressed as of March 2016, while NPAs alone crossed 7.6 per cent. The Reserve Bank had last month warned in the financial stability report that the NPA pains might worsen and that it would cross 8.5 per cent by March 2017.

PTI News

NBFCs seek SDR provisions to tackle infra sector stressed assets

rbi1Mumbai: Non-banking financial companies (NBFCs) have asked the Reserve Bank of India (RBI) to consider extending provisions of the strategic debt restructuring (SDR) scheme to them as many of them lend to the infrastructure sector where stress levels continue to be high, said two people familiar with the development.

The request was put across at a closed-door meeting between RBI governor Raghuram Rajan, select bankers, representatives of NBFCs and asset reconstruction companies (ARCs) on Monday.

Other issues discussed at the meet included schemes introduced for stressed asset management.

The meeting reviewed the functioning of the joint lenders’ forum (JLF) mechanism, flexible restructuring of long-term project loans, the SDR scheme and regulations on sale of assets by banks to ARCs, RBI said in a statement on its website. Continue reading

Bank Nifty down 1.22% as sector faces NPA pressure

Bank Nifty, the guage of top banking shares, touched new lows on Monday as the sector continues to reel under the asset quality pressure even as the Reserve Bank of India (RBI) has asked the banks to clean up their books by March 2017.

The Bank Nifty closed 185.5 points, or 1.22%, lower at 15,020.80 after touching a 17-month low of 14,956 during Monday’s trade. IndusInd Bank was the biggest loser among the banks with its shares declining 2.68%. Shares of State Bank of India lost nearly 2%, while HDFC Bank declined by 1.13% during the session.

The RBI has recently sent banks a list of around 150 companies which have not been uniformly classified by various lenders and asked them to provide for such accounts by March 2016. This seems to be the first step in RBI’s bad loan clean-up drive announced by governor Raghuram Rajan. Continue reading

Bank chiefs ‘stressed’ as Rajan firm on NPAs

rbi-raghuramrajan-imageSome public sector banks stare at loss in Q3, Q4 as tsunami of bad loans hit

Chief executives of some state-owned Indian banks are spending sleepless nights as the lenders stare at the prospect of reporting losses in the October-December and January-March quarters.

With the Reserve Bank of India (RBI) Governor Raghuram Rajan having set a March 2017 deadline to clean up banks’ balance sheets, lenders have been handed three lists. The first two contain the names of borrowers who haven’t paid their dues and whose loans have become non-performing as of March 2015. The lenders have now been advised to make provisions for these bad loans. Banks have to set aside 50 per cent provisioning each for the October-December and January-March quarter for the 150 accounts mentioned in the two lists. While there is no official figure of the amount banks have to provision for, some industry analysts estimate it could be in a range of about Rs.70,000 crore to Rs.1 lakh crore.

The third list, where banks have to identify loans that could become an NPA and accordingly provide for, is for 2016-17. Continue reading

RBI top brass discuss NPA issues with banks, NBFCs

rbiMumbai: Reserve Bank Governor Raghuram Rajan and other top RBI officials met bankers, representatives of asset reconstruction companies and NBFCs today to discuss effectiveness of distressed assets resolution mechanism and sought their suggestions to make it more efficient.

Besides Rajan, Deputy Governors R Gandhi and S S Mundra, senior officials from regulation and supervision departments discussed the current challenges with regard to the management of stressed assets in the banks’ books and the implementation of steps taken by the regulator in this regard.

“The meeting reviewed the functioning of the Joint Lenders’ Forum (JLF) mechanism, Flexible Restructuring of Long Term Project Loans, Strategic Debt Restructuring (SDR) Scheme and regulations on sale of assets by banks to ARCs,” RBI said in a statement.

RBI had, however, called heads and senior officials of select private and public sector banks only. Those present included State Bank of India MD B Sriram, IDBI Bank Deputy Managing Director B K Batra, PNB MD and CEO Usha Ananthasubramanian, ICICI Bank MD & CEO Chanda Kochhar, HDFC Bank Deputy Managing Director Paresh Sukthankar, Kotak Mahindra Bank chief Uday Kotak, Bank of India Executive Director R A Sankara Narayanan. Besides bankers, Arcil Managing Director and CEO Vinayak Bahuguna, Reliance Commercial Finance CEO K V Srinivasan and Edelweiss Group Chairman Rashesh Shah were also present.

“The discussions revolved around asset sales to ARCs (asset reconstruction companies), the effectiveness of SDR and 5:25 refinance scheme. RBI sought suggestions to effectively deal with the issue and said they are going to take them forward,” BoI’s Narayanan told reporters after the meet.

HDFC Bank’s Sukthankar said there were discussions on the practical difficulties faced in implementation of SDR and 5:25 refinancing plan.

“Different players have made various suggestions in terms of making them (SDR, 5:25 scheme and JLF) more effective in terms of implementations,” he said. Edelweiss’ Shah said RBI is committed to ensuring that in the next two years, the NPA issues are completely resolved. The central bank also flagged the issue of capitalisation of ARCs.

“One of the discussions was how to capitalise the ARCs, how to raise more capital from international sources and how to ensure that there is lot more risk capital available which can take these assets and recover them,” Shah added.

Continue reading