RBI Warns Banks

The RBI said that management of Non-Performing Assets (NPAs) by banks remains an area of concern and that liquidity management will become critical going forward as monetary policy stance responds to macroeconomic developments. Signs of financial stress remain an important concern for the Indian banking sector in the medium-to-short-term.

Loan restructuring is done to manage NPAs in the short-term, especially in the case of credit worthy borrowers who are stressed by unexpected and adverse economic developments. Due to the global economic meltdown in 2008 and early-2009, several accounts were restructured by banks.

However, an improvement in domestic and global economic conditions would help in limiting the extent of fresh slippages in the future.

The apex bank had advised banks in December 2009 to ensure that their total provisioning coverage ratio, including floating provisions, were not be less than 70 per cent.

This may provide a cushion against asset slippages, but it may impact the profitability of banks Gross NPA ratio increased in FY 10 and there was a deterioration of asset quality as reflected by an increase in the proportion of doubtful and loss assets in the NPA profile of banks in FY 10.

It called upon banks to a focus on deposit mobilization with commensurate interest rates that could boost retail deposits.