Bank recap hinges on AQR of 200 large accounts
City: 

The finance ministry and banks are awaiting RBI's latest AQR (asset quality report ) on 200 large accounts which it decided to take up in August this year to finalise on capital infusion and provision of NPAs respectively.

The report is expected to be ready by later this month and thereafter both banks and the government will be in a position to decide on provisioning and recap, sources said.

Official sources said this report could put several accounts on the NPA list which would need provisioning and, post AQR report by the banks and subsequently finance ministry, will need to recap them accordingly. The ministry wants to wait to assess the recap requirement of PSBs based on the revised provisioning. That apart, as the G-sec yields have fallen, the government will also have to assess the impact of the falling yields on the PSBs’ MTM gains, said sources.

About Rs 42,000 crore is pending with the government for capital infusion in banks out of the Rs 65,000 crore remaining in the fiscal 2019 from PSB recap programme of Rs 2.11 lakh crore. In August this year, RBI put 200 stressed accounts under the scanner to examining whether banks have followed prudential norms in respect of these stressed assets.

 

It is also assessing classification, provisioning and debt recast in respect of those loans. This is a part of regular annual inspection of books of banks that the central bank undertakes each year after the closure of the financial year, an official said. In most cases, this led to a shooting up of NPAs and an ensuing jump in provisions against dud assets. This eroded their bottomlines and led to a sell-off in the stock causing erosion of wealth for investors.

Some of the accounts include Videocon, Jindal Steel and Power, the official added. This exercise comes at a time when gross NPAs in the banking system have risen to around Rs 10.3 lakh crore or 11.2 per cent of advances, compared to Rs 8 lakh crore, or 9.5 per cent of total loan, as on March 31, 2017.

Following the annual inspection of the last year, many lenders, including Axis Bank, Bank of India and Yes Bank, were caught for under-reporting of NPAs. Last year, RBI had tweaked the rules to make it compulsory for lenders to disclose under-reporting of bad assets. Before this, there was a massive book clean-up through the asset quality review (AQR) in the previous year.