Nirav Modi Is But A Symptom Of A Deadly Malaise

Post-Nirav Modi scam, the RBI’s tightening of the rules forces banks to treat more bad loans as NPAs, showing the extent of a crisis that’s been building for years—and intensifying it.

- Lola Nayar

AS the government and the Reserve Bank of India (RBI) try to shake the Rs 13,000-crore PNB-Nirav Modi monkey off their backs, the bomb ticking on the banking sector’s door step is the rocketing NPAs (non- performing assets). The last financial stability report by the RBI states that the asset quality of banks had deteriorated further with the gross nonperforming assets (GNPA) ratio likely to rise from 10.2 percent of gross advances in September 2017 to 10.8 percent in March 2018 and further to 11.1 percent by September 2018.  That may be well over a whopping Rs 9 lakh crore by the end of this year.

Barring a few categories, loans for which no repayment has been made for 90 days are classified as NPAs. Under the various restructuring schemes, banks were prone to ever-greening big corporate and infrastructure loans to prevent them being classified as NPAs. This was contrary to the spirit of the restructuring schemes, according to senior bankers.

“The main purpose of restructuring per se is to revive a unit. You resort to it only when you are sure the unit has prospects. Accounts can often go bad because of market conditions. In the case of a manufacturing unit, if the indicators are good and it shows possibilities of doing well once the market conditions improve, then the banker may take a decision to restructure a loan,” says a senior banker.

The RBI till recently permitted restructuring of loans only in cases where there was a possibility of a unit becoming viable in future. But predictably, restructuring had become a tool for postponing or avoiding an account turning into a non-performing asset, as that would trigger loan recovery proceedings. The bank would also have to make additional provisioning for the NPA, as per the RBI rules.