Guv holds meet, bank's stocks sizzle

The Reserve Bank of India (RBI) Governor Raghuram Rajan and two of his deputies met with banks and other financial institutions on January 18. The RBI officials discussed on stressed loans in the banking system. India's banks are struggling with more than USD 110 billion (Rs 7432.7 billion)of troubled debt. The entire bad loans phenomenon is lowering overall economic growth of the country.

Owing to the meet of the RBI Governor Raghuram Rajan and leading bank officials, the bank Nifty increased by 1.9 per cent and is trading at 15306.8 on an intraday basis. Axis bank; HDFC bank; Yes bank; ICICI bank; IDBI bank increased by 4.79 per cent; 0.37 per cent; 3.7 per cent; 3.03 per cent; 4.24 per cent on bourses respectively on an intraday basis. On the other hand, SBI and Bank of Baroda increased by 2.87 per cent, 1.46 per cent respectively on intraday basis.

The representatives from banks, non-banking finance companies and asset reconstruction companies reviewed existing systems for allocating and restructuring stressed assets, including the joint lenders forum and the rules governing sale of bad debt. The RBI received several suggestions during the meeting which will be examined and further guidance will be provided.

The RBI and other bank officials held discussions on SDR (Strategic Debt Restructuring) ; 5:25; and JLF (Joint Lender Forum). There were some practical difficulties which were faced in implementation, which were also discussed. According to the RBI, for failed restructured accounts, banks have to make a 5 per cent provision in the March quarter and 2.5 per cent in each of the four subsequent quarters.

The RBI has given deadline to banks to clean up their balance sheets by FY17. According to the Central Bank, many banks could witness sharp fall in profit in H2FY16 because of higher level of provisioning. The RBI issued a list of 150 truant accounts in the first week of December and asked banks to downgrade the loans because they were showing signs of weakness.