start cleaning up? why not let growth take care of the problem? as i have already said, the process started in april 2015. we knew at that time that the global economy would continue to be weak but not that markets would be in turmoil today. nevertheless, this simply reinforces our belief that we needed to act when we did. while growth will help the system, it would likely be significantly impaired if we did not nudge the process of clean up. non - food credit growth from public sector banks, the more stressed part of the system, grew at only 6. 6 % over the calendar year 2015. industrial credit growth for psbs was only 3. 3 % while growth in lending to agriculture and allied lending was only 10. 4 %. the only area of strength was personal loans, where growth was 16. 9 %. in contrast, non - food credit growth in private sector banks was 20. 2 %, in agriculture 25. 4 %, in industry 14. 6 %, and 23. 5 % in personal loans. put differently, in each of these areas except personal loans, loan growth in private sector banks was at least 10 percentage points higher than public sector banks, while loan growth in personal loans was 6. 6 percentage points higher. the most plausible explanation i have is that the stressed balance sheet of public sector banks is occupying management attention and holding them back, and the only way for them to supply the economy ’ s need for credit, which is essential for higher economic growth, is to clean up. the silver lining message in the slower credit growth is that banks have not been lending indiscriminately in an attempt to reduce the size of stressed assets in an expanded overall balance sheet, and this bodes well for future slippages. in sum, to the question of what comes first, clean up or growth, i think the answer is unambiguously “ clean up! ” indeed, this is the lesson from every other country that has faced financial stress. some citizens are outraged by the size of the losses that will have to eventually be absorbed and want the perpetrators to be brought to justice. let me emphasize that all npas are not because of malfeasance. indeed, most are not. loans can go bad even if the promoter has the best intent and banks do the fullest due diligence before sanctioning. nevertheless, where there is evidence of malfeasance by the promoter, it is extremely important that

be used to deal with a problem, but also perversely, to avoid it. so after giving banks the tools, the rbi ended forbearance in april 2015, and then started the asset quality review to ensure that banks were taking proactive steps to clean up their balance sheets. working with the banks, our supervisors, led superbly by our head of banking supervision, ms. parvathy vairasundaram, our executive director for supervision, ms. meena hemchandra, and, of course, our deputy governor, shri s. s. mundra, identified loans that were of concern, as well as loans that had potential weaknesses. for the loans that are of concern, the banks are attempting to regularize the loans that can be put back on track, and are classifying those that cannot for deeper surgery – and taking provisions in accordance with the degree of extant stress in the loan. they will also make provisions for loans that have weaknesses. our intent is to have clean and fully provisioned bank balance sheets by march 2017. why not do everything in one go rather than over a period of six quarters? precisely because a number of these loans can be regularized, or stabilized when weak but regular, through the right collective actions. sometimes, an npa classification, even while permitting deeper surgery, prompts risk aversion on the part of bank boards and they stop lending even when the project is viable. we need to overcome this view – we have issued circulars stating that a loan to a project whose other loans are npa does not automatically become an npa – but it will take time. pending the change in attitude, which i think will come as banks turn to unlocking the value in npas, we are working with them to sequence the most obvious actions up front. however, the end game is clear to everyone and bounded. we do not envisage a sequence of aqrs. having pointed out the contours of the task to be accomplished, our teams are working with the banks to ensure that they are all broadly on the same page in terms of recognition and provisioning, even though each one has flexibility on individual cases. this means that december 2015 quarter results can be compared across banks to get a rough sense of the task each bank has to accomplish. some banks have expressed an intent to moves faster, so as to put the problem behind them, and we have not held them back. we have not put out