"Banks should not slow down their clean-up exercise which they are doing now. Even if the required classification and provision happens, I'd strongly urge them to continue to keep aside money, keep on improving their PCR till it reaches a strong level," SS Mundra said at a seminar here.
Banks should continue their balance sheet clean-up and aspire to take the provision coverage ratio to 70 per cent levels, RBI Deputy Governor SS Mundra said today, even as the central bank-mandated Asset Quality Review ends with the March quarter earnings.
"Banks should not slow down their clean-up exercise which they are doing now. Even if the required classification and provision happens, I'd strongly urge them to continue to keep aside money, keep on improving their PCR till it reaches a strong level," Mundra said at a seminar here.
He further said rather than focusing on profits and other associated aspects like tax payouts and dividend distribution, banks should continue setting aside money for the clean-up process.
In what could cause more pain for the already stressed banks, Mundra hinted that they should take their provision coverage ratio to 70 per cent as prescribed earlier.
When asked to elaborate on his comment on PCRs, Mundra told reporters, "Not a prescribed level (of PCR). We would encourage that on their own, banks should inch it up to the extent possible. I don't have any percentage in mind.
"There is no prescription now but let's say there was a benchmark earlier (70 per cent), it would be a good thing to at least aim for that benchmark," Mundra said.
A few years ago, alarmed by the dip in PCR levels, which represents the ability of a lender to withstand stress, RBI had asked banks to raise it to 70 per cent gradually.
As a result of the massive balance sheet clean-up process which the banks have been asked to embark upon following AQR, there was a dip in PCR at certain lenders as they tried to protect profits or restrict losses.
The RBI asked banks for a list of 150 accounts and asked them to pro-actively classify those as NPAs, resulting in a jump in provisioning for bad assets. The list was later trimmed to 130.
According to some estimates, the banks will have to set aside up to Rs 70,000 crore as part of the exercise.
The RBI has been targeting to clean up bank balance sheets by March 2017. A bulk of the stress has come from the corporate loans given out over the last five years and the state-run lenders are the worst hit.