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The government’s efforts at recapitalising banks and its introduction of the Insolvency and Bankruptcy Code (IBC) last year is expected to aid a faster clean-up of bank balance sheets, the RBI said in a report.
The combination of linking bank performance to the quantum of funds injected through recapitalisation is expected to bring in discipline and disincentivise the recurrence of forbearance and stress, the Reserve Bank report said.
Addressing asset quality concerns and strengthening banks’ balance sheets to reinvigorate credit growth remain key priorities.
‘Don’t wait for the regulator’On the stress in the banking system, the report said banks can take advantage of the IBC to clean up their balance sheets and improve performance on a sustained basis to remain competitive. Instead of waiting for regulatory directions, banks can file for insolvency proceedings on their own to promptly realise the best value for their assets, it said.
In conjunction, the RBI observed that banks need to strengthen their due diligence, credit appraisal and post-sanction loan monitoring to minimise the risks of such occurrence in future.
Meanwhile, RBI’s Financial Stability Report cautioned that in the baseline scenario, GNPAs (gross non-performing assets) of the banking sector may rise from 10.2 per cent of gross advances in September 2017 to 10.8 per cent in March 2018, and to 11.1 per cent by September 2018.
An analysis of the transactions under the corporate insolvency resolution process indicates that the pace of cases admitted to the IBC has picked up with time. The number of corporates undergoing resolution at the end of the July-September quarter rose to 353 from 151 in the preceding quarter and 36 in the January-March quarter.
Another interesting insight is that operational creditors have been the most aggressive in initiation of corporate insolvency proceedings, though the number of financial creditors moving the Board for resolution has also been increasing.
In the July-September quarter, initiation of corporate insolvency transactions by financial creditors rose to 82 (from 31 in the preceding quarter) and by operational creditors to 101 (from 59). The same number in the case of corporate debtor was 31 (from 35).
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