Saturday, October 1, 2011

Banks witness rising risks from unsecured portfolios

Reserve Bank of India Deputy Governor Anand Sinha on Wednesday said that though bad loans were rising in the system, the central bank did not see it as a systemic risk yet. 

Talking to reporters on the sidelines of FICCI-IBA summit here, he said, “We don't see any systemic risks from the current trend of rising non-performing assets.

But, there could be some sectoral risks going forward.” The central bank had jacked up its key lending rate by a steep 425 basis points in the past 15 months to batten down inflation and the banks have passed on the increased cost to borrowers. 

“I would not say we are particularly worried about retail loan segment, but yes, the retail segment is the one that is likely to feel the pressure.” Banks have been witnessing rising risks from small and medium scale industries and unsecured portfolios, which primarily consist of personal loans and credit cards business, apart from the home loan front. 

Bankers had told RBI Governor D. Subbarao last month that there was no systemic risk as of now for banks, even as the interest rate got tightened. On Tuesday, State Bank of India Chief Financial Officer Diwakar Gupta said his bank's Rs.7,000 crore education loan had been witnessing pressure and the level of the stressed assets had reached 4 per cent of this exposure. 

Kolkata-based United Bank Chairman and Managing Director Bhaskar Sen had also said there were rising risks to assets, especially from the SMEs and the retail sector, and that he might look at increasing in the tenor of the loan than increasing the EMIs. On the impact of the Basel III on the domestic banks, especially on state-run banks, which control over 70 per cent of the banking assets in the domestic system, Mr. Sinha said the government would have to infuse funds into the banks to ensure that they were adequately capitalised. Meanwhile, Crisil Ratings Director Ramaraj Pai said the 26 public sector banks would need a huge Rs.8 lakh core capital by 2019, when the Basel III norms would be implemented.

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