RBI's Acharya says NPA problem require significant recapitalisation of banks

Viral Acharya, Reserve Bank of India (RBI)'s newest deputy governor, while presenting his first monetary policy stated that banks need massive recapitalisation to tide over non-performing assets (NPA) problem. 

He said, "The NPA numbers are out there and the problem is quite large. It requires a significant recapitalisation in the banking systems especially the public sector banks."

As per the Economic Survey, gross NPAs climbed to almost 12% of gross advances for public sector banks at end-September 2016.

There are at least fifteen more state-run banks with gross NPAs above 10% which include UCO Bank (17.19%), United Bank of India (14.29%), Punjab National Bank (13.75%), Central Bank (13.52% ) and Bank of India (13.38% ) and Indian Overseas Bank with 20.48% Gross NPAs).

Acharya added, "There is a need for speedy and efficient resolution of stressed assets as it probably could help in restoring the utilisation capacity in this sector while further creating healthy investment in the system and at the same time would also support banks to again start lending in the same sectors again."

FM Arun Jaitely in his Union Budget 2017-18 said, "The government will provide recapitalisation of Rs 10,000 crore in the banking system." This was lower compared to Union Budget 2016-17, were the government stated to infuse Rs 25,000 crore. 

On RBI's change in stance from accommodative to neutral, Acharya said, " I think this is mainly driven by a concern about global inflation which is picking up on fuel and metal side. This could also be a risk coupled with the strengthening of dollar and it could feed into significant inflation for our economy." 

"So unless you believe that a food inflation or deflation is really here to stay than i think your expectation could be based more on the core CPI inflation which is presently sticky," added Acharya. 

Talking on holding rates, he said,"We think that both fast remonetisation that is taking place as well as the balanced budget must aid in narrowing output gap of India."