There is an urgent need to beef up the credit management systems at banks as the lingering global economic turmoil and domestic growth concerns have increased downside risks to financial stability which is evident from rising bad assets, Reserve Bank Deputy Governor, Anand Sinha warned today.
“Deteriorating asset quality of banks can be contained by substantially upgrading their credit management systems,” Sinha said in his address on the concluding day at the three—day Ficci—IBA banking summit here.
Though Sinha was quick to add that the domestic financial system remains robust, as per the RBI stress tests, he said, “The downside risks to financial stability have worsened due to several global and domestic factors. Our banks are no doubt strong, but there are many challenges we have to live with.”
Flagging the surge in bad assets levels and requests for loan restructuring, the Deputy Governor said, “The NPA levels are higher than what they were a while back. So there is definitely a stress in the system. The amount of restructured assets has gone up. Restructured assets, whether you call it standard or sub—standard, the fact is that even if they are standard, they represent stress in the system,” he told reporters later.
While the overall bad assets in the system rose to 5.7 percent in FY12, from 4.2 percent a year ago, the quantum of restructured loans is set to cross Rs 2 trillion by the end of this fiscal.
Listing out the challenges before the domestic banks, Sinha said the immediate challenge facing the banks is arresting the deteriorating asset quality, while the mid—to—long term challenge is to raise capital to meet the Basel III norms.