- Oil & Gas sector set for sharp earnings drop in Q2 amid lower GRMs, other factors; what brokerage recommends on IGL, BPCL, IOCL
- Redmi Pad Unboxing, first look in PICS: Check price in India, colour options, specs and availability
- No charge for RuPay credit card use on UPI for transaction up to THIS amount, confirms NPCI
- Stocks to Buy in October: SBI Cards, Airtel among 5 stocks that may yield up to 29% returns
- PM Modi inaugurates Rs 1470-cr AIIMS Bilaspur in Himachal Pradesh; to lay foundation for projects worth Rs 3650 cr soon
Stress on asset resolution, recapitalisation to improve banks' balance sheets: Acharya
The Deputy Governor said: "The dominance of the supply side factor has also been borne out by the fact that the credit growth of private sector banks remains robust, whereas there has been a sharp deceleration in the credit growth of PSBs"
Reserve Bank of India (RBI) Deputy Governor Viral V. Acharya on Thursday said asset resolution and bank recapitalisation are expected to strengthen bank balance sheets and improve their "ability and willingness" to lend at rates in consonance with policy rates.
According to Acharya, the RBI has reduced its policy repo rate by 50 basis points since October 2016 and by a cumulative 200 bps since December 2014, but the banking sector's credit growth has remained muted.
"While weak demand for bank credit could be one of the factors leading to the observed slowdown in credit growth, a primary cause of the slowdown has also been the weak balance sheets of public sector banks in view of large non-performing assets which seem to have made banks risk-averse and induced them to reduce the supply of credit: under-capitalised banks have capital only to survive, not to grow," Acharya said at the inaugural Aveek Guha Memorial Lecture at the Tata Institute of Fundamental Research (TIFR).
"The dominance of the supply side factor has also been borne out by the fact that the credit growth of private sector banks remains robust, whereas there has been a sharp deceleration in the credit growth of public sector banks."
Acharya further said the enactment of the Insolvency and Bankruptcy Code (IBC) in December 2016, the promulgation of the Banking Regulation (Amendment) Ordinance 2017 which has since been notified as an Act, and the subsequent actions taken thereunder by the Reserve Bank, have made the IBC a "lynchpin of the new time-bound resolution framework for bank NPAs".
"These initiatives will now be supported by the government's decision to recapitalise public sector banks in a front-loaded manner, with a total allocation of Rs 2.1 trillion, comprising budgetary provisions (Rs 181 billion), recapitalisation bonds (Rs 1.35 trillion), and raising of capital by banks from the market while diluting government equity share (around Rs 580 billion)," Acharya said.
"The two steps together -- asset resolution and bank recapitalisation -- are expected to strengthen bank balance sheets significantly and improve banks' ability and willingness to lend at rates in consonance with policy rates and result in an improved monetary transmission," the Deputy Governor added.
You can read Viral Acharya's entire speech here.
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.