Just when you think we are reaching the end of the story, another chapter unfolds and takes the banking sector by storm.
Banks faced a multitude of challenges in the BJP-led government’s first term. Aside from bad loans shooting up and credit growth plummeting, rising bank frauds, governance issues and regulatory flip-flops have kept banks in a perennially sorry state of affairs.
While it is true that the stockpile of their stressed assets is a result of excessive lending between 2009 and 2013 (pre-Modi era), particularly to sectors such as infrastructure, power, textiles and metals, the lack of promised reforms by the Modi government has accentuated the festering structural issues within the banking sector.
Rough patch
The significant slowdown in the growth of GDP over the past five years has weighed on banks’ performance. But what has heightened the issue is the sharp rise in bad loans and provisioning over the past five years that have eroded banks’ capital and weakened their balance sheets.
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Cleaning the books
The massive clean-up of banks’ books that began with the RBI’s asset quality review in December 2015, followed through in the ensuring quarters, as the RBI’s annual based risk assessment revealed hidden skeletons in the lenders’ closets. The biggest blow came from the RBI’s February 2018 circular, which sought to flush out the rot in banks’ books under the guise of various restructuring schemes.
Source: The Hindu BusinessLine
