SWACHH BANKING SECTOR ABHIYAAN

Cleanliness is godliness… But what it has to do with our banking sector? Nothing related to general cleaning of premises or painting their walls. It actually meant cleaning their balance sheets of non performing assets. And our RBI governor in December monetary policy has already given a date to it, March 2017. OMG less than 15 months. Banks especially PSU banks would be having sleepless nights if they take this date seriously. But how did they managed to amass so much of stressed assets (NPAs + restructured assets) and why only PSU banks. Gross NPAs of listed banks stand at Rs. 3.1 lakh crore in the current fiscal.

At the time of 2008 financial crises, our banks (especially PSUs) were prodded to lend aggressively at lower rates to stimulate growth. Though we managed to weather the financial crises well, the banking sector suffered leading to high gross and net non performing assets. In addition to that the banking sector needs to comply with BASEL III norms requiring higher capitalization.  

Central bank is right on its part asking for a fast clean up process as higher NPAs require higher provisions leading to lower profitability and reduced lending ability. With the number of private banks increasing and small & payments banks making debut in the next 2-3 years, our PSU banks do need to gear up. Our banking sector has almost insulated our economy during various global contagions, thus the cleaning process becomes all the more important in current irrational financial times.