BE/RBI NOTE/23/2018
A latest report on NPAs coming under the Prompt Correct Action (PCA) reports reveals that the stressed assets are more contributed by advances through multiple banks/consortium arrangements than those contributed by individual bank advances.
This was revealed by RBI in its Financial Stability Report (FSR) for June 2018. Further,
- The report suggests that issues are observed in screening of such loan accounts. These issues are said to be of permanent in nature.
- PCA-PSBs with a relatively less share of M/C assets in aggregate loan portfolios also have deficiency issues with regard to the M/C assets.
- RBI also highlighted the irregular matching between large and small banks, which affects the latter heavily which in turn has resulted in a fruitful negotiation with other partnering consortium banks, with regard to recoveries.
- Also, the implementation of Insolvency and Bankruptcy Code (IBC) has provided the 11 banks under PCA an opportunity to come out of their traditional continued stressed assets shown in the books.
- The banks have referred 64% of the Gross NPAs as on 31st March 2018 for resolution under IBC. Against these referred amounts 52% are held as provisions.
- Thus, it is observed that a regulation vulnerable to withhold instincts carries related chance of risk thus, inducing behaviour by stakeholders.
- Based on the behaviour, it is seen that 50% of all consortium based loans are stressed. Here, the regulated entities became more dependent on exemptions resulting in institutionalisation of the entire administration of tolerance.
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