Whatever the decision, there needs to be a proper regulatory mechanism to speed it up, said Rajneesh Kumar, MD, State Bank of India.
The Finance Minister yesterday at IBLA Awards promised a major policy decision to push for the quick settlement of the non-performing assets (NPA) at banks in a 'couple of days'.
Rajneesh Kumar, MD, State Bank of India said that no resolution can happen without the support of the Reserve Bank of India and the government. Also whatever the decision, there needs to be a proper regulatory mechanism to speed it up, said Kumar in an interview to CNBC-TV18.
Santosh Singh, Haitong Securities said policy framework around this issue has been formed many times, now what is needed is quick action plan.
For many years the discussions on solving the non-performing assets (NPAs) or bad loan issues have taken place and at the end of the day, there is just one more scheme of debt restructuring but that is not really solving the problem, there needs to be a concrete action plan and that too soon, said Singh.
The rally in banks can sustain only if some action plan is laid out for solving NPA issue, said Singh.
Also Munish Dayal of Baring Private Equity Partners said the guesstimate of stressed asset book is anywhere between 10 and 15 percent.
He further told CNBC-TV18 that whenever you look at resolution of bad loans or stressed assets, there is a question of notional cut, haircut etc, and you get into pricing of assets and the losses to be taken.
Below is the verbatim transcript of the interview.
Anuj: You would have heard the FM talk about various options. What are your first comments because today we have seen a big rally in banking stocks?
Kumar: Bad assets resolution is required, nobody can deny that and if the resolution is to happen then government’s support and intervention is also a given and a reality. Without government support, Reserve Bank of India’s (RBI) support, the resolution is very difficult to arrive at.
So I think if the government is considering these steps and thinking is going on, it is a very welcome step and hopefully we will see some light at the end of the tunnel.
Sonia: What do you think those steps could be because we have heard this before as well? Arvind Panagariya spoke about the public auction of stressed assets, the RBI deputy governor, SS Mundra has also spoken about how mechanisms like Joint Lenders' Forum (JLF) needs to be strengthened further. According to you what are the top two or three things that could be done?
Kumar: One is the consensus between the bankers at the board level. When the JLF happens, there has to be an adequate representation at the senior most level who can get the proposals approved from their board and consensus among the bankers is a must. So that consensus it is very hard to arrive at in the JLF mechanism. So if there is a regulatory mechanism, where the decision-making in JLF can be ensured so that will definitely be a welcome step.
Other than that, yes, there are many mechanisms, Scheme for Sustainable Structuring of Stressed Assets (S4A) is there, strategic debt restructuring (SDR) is there, insolvency and bankruptcy is there but ultimately if there is a deleveraging required, it would mean some haircut.
How much each bank can take and what is their capability and how the support from the various quarters will be coming in, that is something which is a subject matter of deliberation and this is where policy interventions are required.
Anuj: All these are available right now also but we have not seen much headway and as FM also pointed out, it is 35-40 large accounts, which are problem point, so when can we see a move in this direction because there are options available right now as well but the fact is that this problem has remained a chronic problem now for many quarters?
Kumar: That is what I am saying that if there has to be a haircut and the sustainable debt is 40-50-60 percent, one is if the macroeconomic environment improves. The overall valuations should go up but even after that if the debt is not sustainable then how to support debt write-downs or write-offs which may be converted into cumulative preference shares or optional convertibles or equity.
So there are various options available but as soon as you do that, there is net present value (NPV) loss, there is a huge provisioning requirement - the financial position of most of the public sector banks is known to everyone. Supporting those kinds of haircut financially, I think that is the crux.
Sonia: The fact of the matter is many of these mechanisms that have been put into place have not yielded too much results, whether it is the JLF, SDR in fact the lack of progress on SDR is something that has been well documented. According to you what needs to be done now?
Singh: Whatever mechanism we are talking about, in my opinion, they are more of entries or accounting entries nothing more than that because what you are doing is a restructuring or just changing what the loan tenure or you are trying to put in something there but what you need is a resolution of that asset either it is a bad debt or it is not a bad debt.
Once you know, it is a bad debt, you write it off and move ahead. If it is not a bad debt, what needs to be done and what you need is action rather than changing it from one account to another account. In my opinion, it does not change anything for the sector.
So clearly, what is needed is action and for that, the problem is that the public sector undertaking (PSU) banks are not well capitalised to take that action. Secondly, you need a lot of will power to take those actions as such. If there is huge write-off then there will be question marks about why those write-offs are there. So clearly, what you need are actions because policy framework has been formed for many times.
Anuj: In that case, we have seen some of these moves in the past as well, do you think this one is also that – a move that would flatter to deceive unless we hear something concrete, unless we hear something within next few days because otherwise this would again be the case where we have heard this in the past, the stocks rally and then nothing happens?
Singh: I totally agree with you. We have been hearing it for many years and the outcome has been that you come out with one more scheme where the debt can be restructured. So what you need is that some sort of action plan and resolution and then only the rally can sustain.Watch accompanying videos for more details.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.