NPA menace: Banks must take haircut, says KV Kamath

The Reserve Bank of India (RBI) has raised the red flag over the rise in bad loans once again in its Financial Stability Report. The central bank says that NPAs will rise from 9 percent to 10 percent of banks' total assets in a year . Speaking exclusively to CNBC-TV18 veteran banker and Non-Executive Chairman of  ICICI Bank KV Kamath said banks will have to take a haircut to resolve the issue of infra loans and assets.

In the last 10-12 years, there also are unproductive assets which have no value or in an extreme case, loans which are not backed by assets at all. These could be of two types, several services sector companies or working capital type assets. If it is a power project or particularly infrastructure project where the useful life could be 15-20 years, then the haircut would be minimal, but for projects with seven-eight years life, the haircut would be larger, he added.

According to him, it is difficult to precisely put a number whether banks should go for a 10-15-20 percent haircut, but a haircut would be required in every case.

It is half-yearly Financial Stability Report; RBI said cautioned that the strain on asset quality continues to be a major concern. With the present conditions continuing, the gross NPAs inthe system will rise to 4.6 percent by September 2014 from 4.2 percent in September 2013 or about Rs 2,29,000 crore from Rs 1,67, 000 crore a year earlier, it said. The amount of recast loans touched an all-time high of 4 trillion or 10.2 per cent of the overall advances as of September 2013, the report added.

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