RBI for better strategies to deal with problem of bad loans

Reserve Bank today made a case for developing better strategies to deal with the problem of bad loans as hiding them would aggravate the situation for the banks as well as borrowers.

"An account becoming NPA is not a sin. The time has come that it would be a better strategy that if there is a weakness in the account...rather than postponing, hiding the problem either on the part of banks or borrowers, it is important that the bank recognises NPA then extend a helping hand (to borrowers)," RBI Deputy Governor S S Mundra told reporters here.

Stressing that there is no regulation in the world that prohibits "rehabilitation" of NPAs, he said, "if exposure is too big, bank is in a weak position. If exposure is small then the borrower is at weak position. In either of the situation one of the parties will be in a weak position.

"...once you declare an NPA then the realities are known and both the parties can sit across the table and workout a support plan which is more realistic and which is likely to succeed."
As of December 2014, gross NPAs of PSU banks were at Rs 2,60,531 crore or 5.6 per cent of the total advances.

The top 30 defaulters are sitting on bad loans of Rs 95,122 crore, which is more than one-third of the entire NPAs of public sector banks. It amounts to 36.50 per cent.