The Government has been concerned about the exposure of banks to the four troubled sectors of aviation, power, telecom and textiles. In a recently held meeting, the financial services secretary met with the heads of top public sector banks. The meeting was held with the intention of asking all the PSU banks to follow a common strategy while dealing with these sectors.
Banks on their part are also taking necessary steps to deal with this problem. They have restructured their loans to power companies or even stopped lending to the sector. For textiles, they have made provision for a debt recast package.
"It is important that there is better coordination between these banks even if they are not part of the same consortium that lends," the official said.
The move comes at a time when several banks have restructured their loans to power companies and state utilities , or have stopped lending, and a debt recast package for the textiles sector is in the works. Similarly, in case of aviation, loans to Air India have been restructured, while a request for fresh funding assistance from Vijay Mallya-promoted Kingfisher Airlines has been submitted to lenders led by State Bank of India.
The Reserve Bank of India too stuck a note of caution on non-performing assets of banks, which are rising three times faster than the five-year average. It had made a special mention of the power sector and said: "With losses among state electricity boards and coal supply issues faced power projects, high concentration of bank credit in power generation is a matter of concern," the regulator had said in the Financial Stability Report.
RBI's stress test showed that if bad loans were to increase 150%, 20 banks representing 46% of bank lending in India would be forced to seek capital support as their core capital adequacy would fall below the prescribed 6%. Considering that gross NPAs of banks were at 2.01% in March 2011, a 150% increase would translate to a gross NPA ratio of 5.02%.
TEAM Daniel & Boaz
Chennai Law Firm
Ph:- 9962999008
email:- advocatechennai@gmail.com
Banks on their part are also taking necessary steps to deal with this problem. They have restructured their loans to power companies or even stopped lending to the sector. For textiles, they have made provision for a debt recast package.
"It is important that there is better coordination between these banks even if they are not part of the same consortium that lends," the official said.
The move comes at a time when several banks have restructured their loans to power companies and state utilities , or have stopped lending, and a debt recast package for the textiles sector is in the works. Similarly, in case of aviation, loans to Air India have been restructured, while a request for fresh funding assistance from Vijay Mallya-promoted Kingfisher Airlines has been submitted to lenders led by State Bank of India.
The Reserve Bank of India too stuck a note of caution on non-performing assets of banks, which are rising three times faster than the five-year average. It had made a special mention of the power sector and said: "With losses among state electricity boards and coal supply issues faced power projects, high concentration of bank credit in power generation is a matter of concern," the regulator had said in the Financial Stability Report.
RBI's stress test showed that if bad loans were to increase 150%, 20 banks representing 46% of bank lending in India would be forced to seek capital support as their core capital adequacy would fall below the prescribed 6%. Considering that gross NPAs of banks were at 2.01% in March 2011, a 150% increase would translate to a gross NPA ratio of 5.02%.
TEAM Daniel & Boaz
Chennai Law Firm
Ph:- 9962999008
email:- advocatechennai@gmail.com
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