Reserve Bank of India have ascertained as Raghuram Rajan’s ‘Swachh Banks’ mission is on right track thus supporting the Financial Stability Report (FSR). It also helps in regulating the mess of bad debts in banking systems. Prime Minister Narendra Modi continually reminded of the adverse condition of Public Sector banks of the country.
Recently series of events faced as banks became soft targets of consumers side-lining dirt covered debts which eventually got dug out after Rajan’s clear cut steps towards bad loans/debts. In current two-quarters, loan pursuance was restructured deliberately classified as Non-Performing Assets (NPAs). In fact, in most of the conditions banks never stepped forward to show or organise its NPAs.
Rajan took the measures against NPA, which was jeopardising the economy thus leading towards a substantial decline of Indian banking systems. The policies attained for such misused debts with FSR is coming as a positive response.Loans taken from corporate were bad debts which were never addressed thus making the economy weak.
Rajan’s firm step towards “cleaning” debt provided to different sectors within terms and conditions. He set a deadline which was March 2017 henceforth forcing all the corporate sectors to roll the carpet as soon as possible. Though the dirt settled in for many years gathering altogether; almost above 10 years or so, being certainly a tough job to achieve.
If we take a look at the broader aspect, then total NPA has increased to 7.6% in the first quarter of the current fiscal year as compared to September quarter which was 5.1%. The total stressed assets, bad loans and restructured loans in the banking sector have risen to 11.5%. Earlier it was 11.3% in September. The worst scenario to be faced would be NPA increasing to 9.3% by March ’17.
The public sector banks have a record of carrying a maximum amount of stressed loans i.e. 14.5% in comparison to private sector banks and foreign banks which is not more than 4.5%. The reason of depreciation in a context of restructured assets of banks was falling to 3.9% from 6.2% subsequently.
The push given from Rajan’s side came as a shock to all the public sector banks. But dealing with bad debts amounting 2 lakh crores was not an easy task. Few Chairpersons of leading banks revolted as fetching out loads and loads of NPAs from their balance sheet which piled up for years. The regulative authorities pushed the financial institutions to “clean the mess” in every plausible way. Henceforth, a mission of ‘Swacch Banks’ initiated by Rajan came on the right track with the support from central government.