Banks need incentives to clean up bad loans: State Bank of India

Banks need incentives to clean up bad loans: State Bank of India

"The budget statement was clear that if required the government would not hesitate to support the banks. They will find the means and ways to fund banks."

The State Bank of India (SBI) on Wednesday said that the Reserve Bank of India (RBI) needs to give some incentives to banks for resolution of bad loans in terms of provisions or extending the deadline of March 31 to clean up their books.

"Wherever resolution is being attempted, some kind of incentivisation from RBI in terms of NPA (non-performing assets) recognition date of March 31, 2017, or in terms of provisions should be given. If this relaxation can be given, banks will be encouraged for faster resolution," SBI MD Dinesh Kumar Khara told BTVi in an interview.

"Various professional agencies have got into the process of resolution. I think consultants are also coming up for managing the stressed assets. Things are happening but one month is too short for definite results," he said.

Khara said that though the banking sector is prepared for the worst, whatever be the regulatory guidelines, it is also putting forth its viewpoint.

He also notes that in every case, the public sector banks are assured of government support.

"The budget statement was clear that if required the government would not hesitate to support the banks. They will find the means and ways to fund banks. I don't expect problem on this count provided banks have justified reason for additional capital," he said.

Meanwhile Finance Minister Arun Jaitley had sidelined the idea of bad bank on the account that the taxpayers' money should not be used to pay for corporate defaulters to banks.

"Creation of a bad bank or a public sector agency is one of the suggestions. Any mechanism eventually supported by the Budget should be avoided. If a private company doesn't pay the bank, then taxpayer should not pay the bank for it," Jaitley had said on Tuesday.

Khara however said: "Bad banks are not essentially expected to pick up bad assets, but also turnaround these and make them profitable. Bad banks will have investors who see the turnaround of these assets."

He said that banks had made assessments based on judgement and assumptions, many of which didn't turn out the same way but all decisions were not bad.

"All banks make assessment. Not all decisions could be bad. Banks can segregate such assets and focus on justified lending," he added.

Source:BankingUpdates