Urjit Patel blames former governors and governments for the NPA disaster

MUMBAI: In his first speech since he resigned as governor of RBI last December, Urjit Patel He has blamed his predecessors at the central bank for not taking the punch from the credit party. He has also accused several governments of using public sector banks (PSB) to boost the economy and reject reforms.

In a presentation, Patel highlighted how the number of bad loans in India is among the highest in the major economies and the much-needed reform still evades the PSBs, which account for most of the mess.

Urjit GraphUrjit Graph

The presentation, made as an opening speech at a conference on Indian economic policy at Stanford on June 4, was recently uploaded. Patel has blamed the then government for encouraging PSBs to help boost the economy for further growth under the guise of deepening capital and sensitive sectors.

The double regulation of PSU banks by RBI, the government was not addressed, says Urjit

He said that the reforms were practically lacking, since, on a routine basis, high-level positions in government banks became vacant and board positions remained vacant.

The dual regulation of PSU banks by RBI and the government was not addressed, Patel said. By the way, this was an area where he had confronted the government, noting that the RBI did not have total power over the PSB.

Patel, blaming the banks for not maintaining a balanced growth of credit loans, noted that the growth of non-food credit between fiscal year 2007 and fiscal year 2012 was around 20%, while the GDP growth rate real was around 7%. He said the supervisor did not recognize or rectify the inability of government banks to identify low-performing assets. In contrast (the regulator) allowed greater flexibility, for example, the company/group/NBFC exposure rules as a percentage of funds owned by banks in the network adjusted upwards, Patel said.

According to Patel, the regulator did not understand that the assumptions made by the banks about the reactivation of stressed businesses were going badly. These assumptions should have been questioned by stress tests in banks and sensitivity analysis On the assumption of the demand and on the risks of the policies for the sectors.

In 39 condemnatory slides, Patel used data to show how bad loans have hollowed out the capital of the PSBs, which have not provided enough for possible losses, and the government's response has been to throw more capital into the banks. Noting that more than half of the funding in India comes from banks, the former governor highlighted the gross numbers of NPA (unprofitable assets) that were worse than most major economies except Italy and Russia . In India, gross NAPs are 10.3% compared to 1.9% in China or 3.2% in Brazil and 1% in the United States.

Patel noted that since 2010, government participation in public sector banks has actually increased, driven mainly by the need to promote social objectives such as the Mudra schemes, 59-minute loans for SMEs and universal bank bills OSE it is the only lender where government participation has decreased from 59% to 58%, and in most of the others, the government has increased its participation. In some cases, government participation has increased by up to 25%.

Raising the issue of governance in PSU banks, Patel highlighted how 90% of all frauds occurred in PSBs. In terms of capital adequacy, nationalized banks are at the border with a ratio of 13% as compared to 16% for private banks and 13% for OSE.

In addition to the high NPAs, Indian banks are lagging behind their global peers in the provision of provisions for these uncollectible debts. The cushion for bad loans, which includes the provision coverage ratio and recovery rates, is added to 77% in India, which is the lowest among all the major economies.