Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Can RBI Uproot the NPA Rot?
Wed, 31 May Pre-Open

The government is taking a close look at stressed assets worth Rs 5 trillion of various corporates, as it steps up its efforts to resolve a heightening crisis in the country's banking sector.

As per an article in The Economic Times, the government, the Reserve Bank of India (RBI) and even probe agencies are scanning about 50 stressed assets, which have been put on a watch list.

The list represents stressed accounts, which includes loans that have turned bad or been restructured as of December 2016. The total value of such top 50 loans is estimated to be around Rs 4-5 trillion, which is almost 80-85% of the total bad loans for state-run lenders.

Bad loans at public sector banks have grown more than Rs 1 trillion since April 2016 to Rs 6 trillion crore as of 31 December 2016. Recent NPA issues of Yes Bank and IDBI Bank also signal a worrying trend.

However, NPAs are just a part of the problem. According to former RBI deputy governor KC Chakrabarty, the total stressed assets in the sector soon could reach Rs 20 trillion.

Just Released: Multibagger Stocks Guide
(2017 Edition)

In this report, we reveal four proven strategies to picking multibagger stocks.

Well over a million copies of this report have already been claimed over the years.

Go ahead, grab your copy today. It's Free.

NO-SPAM PLEDGE - We will NEVER rent, sell, or give away your e-mail address to anyone for any reason. You can unsubscribe from The 5 Minute WrapUp with a few clicks. Please read our Privacy Policy & Terms Of Use.

As more and more skeletons come out of the closet, it's important to identify the root cause of the problem. That of corporate debt. Apart from the banking sector, corporate debt also has serious implications for the overall Indian economy.

Banks with a sizable amount of bad loans on their books are reluctant to lend to even healthy companies. This will adversely impact the growth of the economy going forward.

The Indian government has recently stepped up its efforts to address the problem. As part of this, the government has amended the The Banking Regulation Act through an ordinance, giving more teeth to the RBI to deal with NPAs.

The ordinance essentially gives power to the RBI to give directions to banks for the resolution of bad loans from time to time. It also allows the Indian central bank to appoint committees or authorities to advise banks on the resolution of stressed assets.

Though this has been touted as a big boost to the government's efforts to tackle the problem, there is also a view that the RBI - the banking regulator will be sitting at every negotiation table for resolving bad loans.

The ordinance does nothing to remove the constraints that banks face while taking commercial decisions about their loan accounts. As the Economic Survey said, "the road to resolution remains littered with obstacles, even for the most ordinary of bad debt cases." The difference is that now it is the RBI who will be responsible for surmounting those obstacles, rather than the banks themselves.

Also, what precedence does this set for banks? In the business of lending, one cannot wish away bad loans. There will be slippages even when the Indian economy is doing well. Banks will be lending to the same companies that are now bad assets in their books. It is unsettling that the only entity determined to clean up the bad loan mess is RBI.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary


What else is happening in the markets today? Dig in...

Equitymaster requests your view! Post a comment on "Can RBI Uproot the NPA Rot?". Click here!

  

Views on News

Why Active Investing is Still Relevant in the Second Wave of COVID-19 (Outside View)

Apr 15, 2021

PersonalFN explains whether actively managed mutual funds still hold the potential to generate significant alpha for investors amid the second wave of COVID-19.

How Did We Fare in FY 2020-21? (Fast Profits Daily)

Apr 15, 2021

Let's take a look at how my Weekly Cash Alert recommendations did in financial year 2020-21.

A Stock with 700% Return Potential Comes with Additional Payoffs (Profit Hunter)

Apr 15, 2021

Narayana Murthy was one of the first unicorn founders to get the backing of this entity...

How Millennials Can Overcome the Financial Challenges (Outside View)

Apr 14, 2021

The pandemic triggered an economic downturn, and millennials experienced layoffs and pay cuts, it affected their finances and ability to build wealth.

India's QE and the Stock Market (Fast Profits Daily)

Apr 14, 2021

In this video, I'll tell you how the RBI's new quantitative easing program could affect the stock market.

More Views on News

Most Popular

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.

4 Stocks to Make Your Portfolio Immune to the Second Covid Wave (Profit Hunter)

Apr 6, 2021

Rather than predicting the market, successful investing is more about preparing well and placing your bets accordingly.

An India Revival Stock I'm Bullish On... (Profit Hunter)

Apr 9, 2021

This could take India to the position of 3rd largest economy.

Why Did the Market Crash on Monday? (Fast Profits Daily)

Apr 13, 2021

In this video, I'll you what I think is the real reason behind yesterday's market crash.

Why the Market Fell Yesterday (Fast Profits Daily)

Apr 6, 2021

In this video, I'll tell you the two reasons why the market fell on Monday and how you can prepare yourself for such events in the future.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Apr 15, 2021 01:32 PM

MARKET STATS