RBI may push back AQR exercise by few months on Demonetisation impact

The Reserve Bank is expected to extend the deadline for asset quality review (AQR) of lenders by a few months because of the unusual situation in the financial sector following demonetisation, bankers said.

The cleaning up exercise that is required should be done properly, they said. A senior bank official said lenders may require few more months for proper implementation of AQR as most of their staff was busy with demonetisation for two month.

Besides, RBI has extended the 90-day breather from getting accounts classified under non-performing asset (NPA) category for loans up to Rs 1 crore. This dispensation is applicable to dues payable between November 1 and December 31.

This will also come in the way of AQR for which RBI had set a deadline of March 2017, said the official.

Government had in November demonetised high value notes, which accounted for 86 per cent of the entire currency in circulation.

RBI had embarked on the AQR exercise from December 2015 and asked banks to recognise some top defaulting accounts as NPAs and providing for them. It has had a debilitating impact on banks' numbers and their stocks.

The move resulted in a spike in bad assets with lenders recognising over Rs 1 lakh crore of bad assets in the December quarter alone.

Almost all the major lenders in the system have reported a sharp increase in asset quality stress and heightened provisioning as a result of the AQR, under which banks have been reportedly asked to recognise stressed accounts by March end.

According to another bank official, it is up to RBI to take a final call on AQR deadline based on their assessment but asset quality of banks would remain under stress for next two quarters.

Some of the lenders like Canara Bank, Axis Bank, State Bank of Bikaner and Jaipur, State Bank of Mysore, IDFC Bank have reported increase in NPAs during the quarter ended December 2016.

Public banks have seen nearly Rs 80,000 crore increase in gross non-performing assets (GNPAs) in the three months ended September 2016. Their GNPAs rose to Rs 6,30,323 crore as against Rs 5,50,346 crore by June-end.

As of June 30, 2016, NPA accounts above Rs 50 crore were 2,071 with outstanding amount of 3,88,919 crore.