ET NowIn an interview with ET Now, Rupa Rege Nitsure, Chief Economist, L&T Financial Services, shares her views on banks' asset quality and how it can improve. Excerpts:
ET Now: Private banks have come out with a decent set of numbers, PSU banks' asset quality pressure still there, how do you study the market of bad loans at this juncture and the exposure that private banks may have to it?
Rupa Rege Nitsure: So far as major infrastructure groups and sectors like power or metals are concerned, I do not think their problems have any short-term solutions. Unless we see a broad-based revival happening in the country, which will at least reduce the pressure of cyclical NPLs, there is no hope that overall NPL position or asset quality position would improve dramatically for any bank irrespective of its ownership group.
ET Now: What do you make of how some of the PSU banks have reported their earnings so far? Do you think the pain is likely to continue or it is going to be company-specific, how managements will approach in bringing down bad loans as well as stepping up on recoveries?
Rupa Rege Nitsure: A lot would depend upon the management’s role and it is company specific but I would make a distinction between structural and cyclical NPLs. Luckily, this year, the monsoon has panned out better than what we had expected at the beginning of July or mid July. So, to some extent, those fears have been allayed. So, barring a few states, monsoon rainfall has been good. Agricultural NPAs may not pose a big threat going forward except for a few players who have concentrated presence in say Southern India or Central Maharashtra. But so far as cyclical NPLs are concerned, I am not saying it is posing much threat but structural NPLs, especially those concentrated in infrastructure sector, require solutions.
ET Now: Do you see recapitalisation of some of these banks as part-answer to the problem?
Rupa Rege Nitsure: Partly yes, because that will restore the lending capacity, given the burden of stressed assets and requirements of provisioning. They are left with very few or limited lendable resources, so capital infusion under the new regime would definitely help.
Having said that, I feel that the RBI’s policy stance and banks' NPL position are closely interlinked. Even if RBI decides to reduce policy rates, that will not trigger transmission because of very limited elbow room left with the banks to reduce lending rates. So, these two are very much interlinked problems and we cannot analyse monetary policy in isolation.
ET Now: Private banks have come out with a decent set of numbers, PSU banks' asset quality pressure still there, how do you study the market of bad loans at this juncture and the exposure that private banks may have to it?
Rupa Rege Nitsure: So far as major infrastructure groups and sectors like power or metals are concerned, I do not think their problems have any short-term solutions. Unless we see a broad-based revival happening in the country, which will at least reduce the pressure of cyclical NPLs, there is no hope that overall NPL position or asset quality position would improve dramatically for any bank irrespective of its ownership group.
ET Now: What do you make of how some of the PSU banks have reported their earnings so far? Do you think the pain is likely to continue or it is going to be company-specific, how managements will approach in bringing down bad loans as well as stepping up on recoveries?
Rupa Rege Nitsure: A lot would depend upon the management’s role and it is company specific but I would make a distinction between structural and cyclical NPLs. Luckily, this year, the monsoon has panned out better than what we had expected at the beginning of July or mid July. So, to some extent, those fears have been allayed. So, barring a few states, monsoon rainfall has been good. Agricultural NPAs may not pose a big threat going forward except for a few players who have concentrated presence in say Southern India or Central Maharashtra. But so far as cyclical NPLs are concerned, I am not saying it is posing much threat but structural NPLs, especially those concentrated in infrastructure sector, require solutions.
ET Now: Do you see recapitalisation of some of these banks as part-answer to the problem?
Rupa Rege Nitsure: Partly yes, because that will restore the lending capacity, given the burden of stressed assets and requirements of provisioning. They are left with very few or limited lendable resources, so capital infusion under the new regime would definitely help.
Having said that, I feel that the RBI’s policy stance and banks' NPL position are closely interlinked. Even if RBI decides to reduce policy rates, that will not trigger transmission because of very limited elbow room left with the banks to reduce lending rates. So, these two are very much interlinked problems and we cannot analyse monetary policy in isolation.
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