OPERATING PROFIT OF BANKS

OPERATING PROFIT OF BANKS

With the figures of the Listed Banks, available as on 31st December 2016, the RBI says that the banks’ asset quality position appears to have improved. The  gross non-performing assets (NPAs) ratio in the banking system has gone up, though the ratio has come down for the first time in some quarters says the report.

The RBI Deputy Governor, who was speaking to the journalists post monetary policy review, also added that similarly in respect of net NPAs, consistent with gross NPAs, while there seems an upward trend in a large number of banks, the ratio had come down meaning that the provisioning made is sufficient.  Further, some of the restructured assets fell into the NPA category which resulted in a reduction in the percentage of restructured assets.

On the whole, the system has shown improvement in operating profits but on the back of higher provisioning, some of the pressures on net profit would continue. The level of stressed assets in the sector is a little above 20 per cent, putting together gross NPAs and restructured assets. That is a concern.

RBI has been focused on this for some time. The continuous provisioning has, to some extent, equipped banks to deal with those accounts.  While it is good that weakness has been recognised and provisions have been built, the most important thing is their resolution.  During the past 18 months, RBI has provided tools such as –Strategic debt restructuring and the ‘5/25’ scheme.  Under each of these, quite a few cases have been taken up.

One more area, here is the new bankruptcy code which would operational soon. Combined use of these case-specific tools is something RBI will continue to monitor.  However, the Deputy Governor feels that provisions for stressed loans are adequate.

Author: Admin Bankedge

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