As NPAs rise, banks moot industry panels to determine value of stressed assets

With non-performing assets (NPAs) reaching a worrisome position, especially for public sector banks, there may be a need for the government to set up industry committees to determine valuation of large stressed accounts and get large PSUs in respective sectors to bid for them at the assessed valuations, according to an FICCI-IBA survey.

This suggestion comes in the backdrop of the Fifth FICCI-IBA Survey (for the period January-June 2017) finding that the number of banks reporting a rise in the NPA levels has increased from the previous survey’s period.

A total of 20 public, private and foreign banks participated in the survey. These banks together represent 64 per cent of the banking industry, as classified by asset size.

While share of respondents citing rise in NPAs in the preceding survey period stood at 76 per cent, it has increased to 80 per cent according to the current survey. A staggering 91 per cent of respondent PSU banks reported a rise in NPAs, with the remaining reporting no change. Seventy one per cent 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.

During the first half of the calendar year, metals, iron & steel, infrastructure and textiles witnessed high level of NPAs with more than 50 per cent of total respondents citing these as sectors with high NPAs. Other major sectors with high NPAs are chemicals, food processing, construction and trading, power generation, machinery and sugar, among others.

Forty per cent of respondents also mentioned an increase in requests for restructuring of advances as against 18 per cent in the previous round of the survey.

Among the suggestions made by respondent banks for resolution of NPA problem include granting them special dispensation in provisioning norms for the cases referred under the Insolvency and Bankruptcy Code (IBC) as this will incentivise them to refer more cases under IBC; setting up of more benches of Debt Recovery Tribunal and National Company Law Tribunal to avoid backlog of cases.

Further, the respondents want the RBI to consider a few changes in the scheme for sustainable structuring of stressed assets (S4A) by reducing the percentage of sustainable level of loan up to 40 per cent (from at least 50 per cent now), and extending repayment terms, subject to maintaining the net present value, post resolution.

The respondent banks also want widening of the definition of ‘qualified buyers’ so that the retail investors may also be allowed to deal with security receipts issued by Asset Reconstruction Companies.

According to the Survey, a large majority of respondents have not changed their credit standards for large enterprises or SMEs in first half of 2017. However, about 35 per cent of the respondents reported tightening of credit standards for large enterprises in first half of 2017 and about 40 per cent respondents expect further tightening in the next six months.

On the other hand, about 15 per cent of respondents have eased the credit standards for SMEs in the first half of 2017 and about 20 per cent expect further easing of standards in the next six months.

When bankers were asked to present their views on the recently released discussion paper of RBI on ‘Wholesale and Long Term Finance (WLTF) banks’, majority of the respondent banks expressed that establishment of such banks will be positive for the economy.

The bankers felt that setting up of WLTF banks will help universal banks overcome mismatch in tenure of their assets and liabilities; enable commercial banks to reduce the long tenor risk which they are currently running on the infrastructure projects; expect improvement in quality of lending due to better evaluation and funding of long-term projects.