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Friday, October 14, 2016

Bad Loans Not An Issue, Rate Cuts To Fetch Rs. 2.5 Lakh Crore Gains: K V Kamath

Seeking to allay fears arising from a pile-up of bad loans, veteran banker K V Kamath said interest rate cuts will give troubled lenders a boost of Rs. 2.5 lakh crore through treasury gains that will help the system tide over troubles and also ease pressure on growth capital.

"At this point I have no fear at all (about non-performing assets)," Mr Kamath, president of the BRICS grouping-promoted New Development Bank, told PTI on the sidelines of the eighth BRICS Summit here.

"The interest rate correction gives one big comfort. The treasury gains on mark-to-market for banks so far is Rs. 1 trillion." 

"We expect another 1 percentage point fall, that should lead to another Rs. 1.5 trillion of gains. That is a good Rs. 2.5 trillion gains coming to the banks," said Mr Kamath, who is credited for making ICICI Bank the largest private sector lender in the country.

With some quarters flagging depleting capital levels as a key concern for lenders, Mr Kamath said the treasury gains will also ensure that the worst of the fears do not come true. 

"Capital is coming in because of the treasury gains," he said.

A one-time asset quality review undertaken by the Reserve Bank of India last year to have a true picture of bank balance sheets led to a manifold spike in their non-performing assets, which required provisioning and historically high losses being reported by lenders.

This, in turn, put pressures on the capital buffers of the banks.

This has resulted in banks shying away from lending to corporates in general and to large over-leveraged groups in particular, who collectively owe close to Rs. 9 trillion in dud loans to the system.

As a result, credit to the industrial sector has come to naught. In August, it hit the negative territory with a de-growth of around 0.3 per cent.

The dent in investor confidence due to the loan losses, coupled with market volatilities, has made the avenue of raising capital difficult. Moreover, coming at a time when the system is migrating to the capital-intensive Basel III framework, it has led to more concerns on capital adequacy. 

International rating agency Fitch had pegged the capital requirement of lenders at $90 billion till 2019, when the Basel III framework will have to be fully adopted. 

According to the RBI, the gross non-performing assets of the banks had stood at 8.7 per cent at the end of the June quarter. In the Financial Stability Report, the central bank had said it expects the ratios to deteriorate further under a baseline scenario. 

source ndtv profit

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