1 Asset Quality Challenges in India: Diagnosis and Prognosis1Shri Rashesh Shah, Chairman and CEO - Edelweiss Group; members of the finance fraternity; delegates to the Conclave; ladies and gentlemen! It is indeed a pleasure to be here this morning. In my address, I primarily intend to focus on some of the contemporary issues around our banking sector that have come to dominate news rooms, court rooms, board rooms and drawing rooms alike. I am hinting at loud vilification of bankers and promoters without distinguishing between the victim and the black sheep. This is not an endeavor to bat for either the banks or the promoters but only an attempt to put the things in right perspective and to encourage an objective assessment of the situation. But before I do that, let me begin with some good news on the economic front. 2. Amidst the continued global sluggishness, domestic growth outlook remains positive for 2016-17 mainly on account of various structural reforms undertaken, expectations of a normal monsoon, easing of CPI inflation and rising private consumption. Focus on rural and social infrastructure sector and decline in subsidy outgo have resulted in improvements in the fiscal front, both quantitatively and qualitatively. Over the recent past, steel prices have strengthened both, globally and domestically, especially after introduction of the Minimum Import Price. Cement and auto sectors have also shown signs of growth pick up while the demand for oil has also increased by about 11 % in terms of quantity conveying some signs of buoyancy in economic activity in the country. 3. Let me now come to the main issue that I wanted to focus on this morning. What I am going to speak may sound like a medical script but that is how this story can be best described. I begin with talking about the symptoms of the disease that had shown signs of turning malignant. Symptoms 4. The signs of rising stress in the banking system became increasingly evident in the years beginning 2012. The stressed assets (GNPA+ Restd. Std. assets +Written Off 1Keynote address delivered by Shri S. S. Mundra, Deputy Governor, Reserve Bank of India, at the Edelweiss Credit Conclave held in Mumbai on April 28, 2016.
2 Accounts) for the banking system as a whole, which stood at 9.8% as at the end of March 2012, moved up sharply to 14.5% as at the end of December 2015. During the same period, the stressed assets for the PSBs spiked from 11.0 % to 17.7%. 5. Similarly, the growth in net profits of SCBs was also on a declining trend since 2011-12 and turned negative in 2013-14. This decline in net profits of SCBs during this period was primarily the result of higher provisioning on banks’ delinquent loans during the period 2012-14. This in turn impacted their return on assets (RoA) and return on equity (RoE). The banks’ spread and net interest margin (NIM) also witnessed a decline during the period.