Evergreening of loans: FinMin seconds RBI Governor Shaktikanta Das's caution to private banks

The Finance Ministry has said that it completely supports Reserve Bank of India (RBI) Governor Shaktikanta Das's statement cautioning against the evergreening of loans, sources from the Ministry told Zee Business. The Finance Ministry seconded RBI Governor's opinion, stating that, unlike private banks, the condition of non-performing assets (NPAs) in the PSU banks is clear. However, it added that the comment of the RBI Governor is justified because the exact state of NPAs in private banks is still not clear.

As pointed out by the sources in the Ministry and also banking experts, individuals from the Finance Ministry and RBI are part of the board of PSU banks, but that is not the case for private banks. 
 
The RBI Governor had recently cautioned the banks for adopting innovative methods for the evergreening of loans as a way to cover up the real status of stressed loans of corporates and to project an artificial clean image in cahoots with corporates.

“Although, there is no big gap in terms of the balance sheets between the PSU banks and the private banks on a systemic ground, however, I think the caution has been issued on the backdrop of what happened in the private banking sector in the USA,” Ajay Bagga, Chairman of Elyments Platforms, said.

RBI Governor pointed out that there have been instances where one method of evergreening was pointed out by the regulator, only to be replaced by another method by the banks.

Evergreening of loans is also known as revolving credit and it is done when banks advance additional funds to borrowers to keep their old loans standard. This method of granting a new loan to prevent any default is generally used to hide NPAs.

“RBI is also trying to point out that the banks have gone more aggressive than required in terms of retail loans. While they have written off some corporate loans or have just referred to the NCLT,” Devidas Tuljapurkar, General Secretary of MSBEF, said.
 

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