Lok Sabha Question No. 2869 (UNSTARRED), answered on 2018-12-28
Subject: Financial Strength of Banks
Ministry: FINANCE
Asked by: SUKENDER REDDY GUTHA

## GOVERNMENT  OF INDIA MINISTRY  OF FINANCE DEPARTMENT  OF FINANCIAL SERVICES

## LOK SABHA

## UNSTARRED QUESTION NO. 2869 TO BE ANSWERED ON THE 28 TH  DECEMBER 2018/ PAUSHA  7, 1940  (SAKA) Financial Strength  of Banks

## 2869.  SHRI GUTHA  SUKENDER REDDY:

Will  the Minister  of FINANCE  be pleased to state:

- (a) whether   the  Government   has  made  review   of  financial   strength   of  the  banks recently;
- (b) if so, the details  thereof;
- (c) the details  of the status  of Non  Performing  Assets (NPAs)  at present;  and
- (d) the steps being  taken  by  the Government  and action  plan  chalked  out to reduce  the NPAs and strengthen  the financial  position  of the banks?

## ANSWER

## Minister of State in the Ministry  of Finance (SHRI SHIV PRATAP  SHUKLA)

(a) to (d): Government  monitors  financial  strength  of banks  on a continuous  basis. Asset Quality  Review  (AQR)  carried  out in 2015 for clean and fully  provisioned  bank  balancesheets revealed  high  incidence  of NPAs.  Expected losses on stressed loans,  not provided for  earlier   under   flexibility given   to  restructured   loans,   were   reclassified   as  NPAs   and provided  for. Public  Sector  Banks (PSBs) initiated  cleaning  up by  recognising  NPAs  and provided  for expected  losses. Further,  during  the fourth  quarter  of the financial  year  (FY) 2017-18, all such schemes for restructuring stressed loans were  withdrawn. As a result, while  PSBs have posted aggregate operating  profits  during  first half of current  financial year   of  Rs  75,030  crores,   they   have  posted  losses  primarily on  account   of  continuing ageing  provision   for  NPAs   recognised   as  a  result  of  AQR   initiated   in  2015  and subsequent transparent recognition by banks, including under RBI's circular discontinuing   restructuring schemes  in  the  fourth   quarter   of  FY  2017-18.  PSBs  made aggregate  provision  for NPAs  and other  contingencies  of Rs. 85,791 crore  during  the first half of the current  financial  year.  Additionally, because of hardening  of bond yields,  these banks had aggregate mark-to-market  losses on their  investment  portfolios  of Rs. 20,384 crore  during  the same period.

- (i) Recognising NPAs transparently;

Over the last four and half financial  years,  Government  has taken  comprehensive  steps in a planned  manner  to reduce  NPAs  and strengthen  the financial  position  of PSBs, under its 4R's  strategy :

- (ii) Resolving  and  recovering value   from  stressed  accounts   through   clean  and effective laws  and processes;
- (iv) Reforming banks  through  the PSB Reforms  Agenda  to make  them  responsible  and responsive.
- (iii) Recapitalising banks;  and

The results  of Government's  comprehensive  4R's  approach  are visible:

- (1) Gross  NPAs   of  PSBs  have  started   declining,   after  peaking in  March  2018, registering  a decline  of Rs. 26,789 crore,  from  Rs. 8,95,601 crore  in March  2018 to Rs 8,68,812  crore  in September  2018.
- (2) Non-NPA  accounts  overdue  by  31 to 90 days  (Special  Mention  Accounts  1 and 2) of PSBs have declined  by  61% over five successive quarters,  from Rs. 2.25 lakh crore   as  of  June 2017  to  Rs.  0.87 lakh   crore   as  of  September   2018,  indicating significant  improvement  in asset quality.
- (3)  The Provision  Coverage  Ratio  (PCR)  of PSBs has risen  steeply  from  46.04% as of March 2015 to  66.85%  as  of  September   2018,  giving   banks   cushion   to  absorb losses.
- (4) Record  recovery  of Rs. 60,726 crore  has been effected by  PSBs in the first half of the current  financial  year,  which  is more  than  double  the amount  recovered  over the corresponding  period  of the last financial  year.
- (5) Credit  Risk-weighted  Assets to Gross Advances  ratio  has decreased steadily  over the  past  four  quarters,   from   80.26%  in  September   2017 to  71.2%  in  September 2018.
- (6) India's  global  rank  on 'getting  credit'  under  World  Bank's  Ease of Doing  Business Index has improved  from 44 in 2016 to 22 in 2018.