Ashika Monthly Insight August 2016

AUGUST 2016
ECONOMIC REVIEW
Projected sectoral GNPAs under various scenarios (per cent of advances of their respective sector)
Thus, clearly while the process has been initiated and the
banks are in the process of much needed clean up of the
balance sheets. The corporate from the stressed sectors
like iron & steel, engineering has often been victim of
muted demand and excess capacities thus unable to
service interest payments. Thus, although the FSR
highlights that the corporate de-leveraging has indeed
begun and the final assessment states that even though
the banking sector is going through difficult phase, the
Indian financial sector remains stable. The newly
introduced sustainable structuring of stressed assets (S4A)
scheme expects to address the issues with the stressed
players particularly in the iron & steel sector. However,
the success will also be dependent on the outlook of the
industry apart from the will and management efficiency.
In the face of global challenges plaguing India’s growth
story, continuation of sound domestic policies and
structural reforms remain the key for macroeconomic
stability. Needless to say that the banking sector,
especially public sector banks which account for 70% of
the overall banking in the country needs to be dealt with
more seriousness from the government. Although, the
implementation of bankruptcy code will take time,
nevertheless it is a beginning and a step in the right
decision. However, for the time being the government
needs to continue boosting the investment climate by
committing higher public capex since private capex still
needs time to pick up. Indeed, this is jeopardy for the
government to allocate the crucial budgetary funds given
the implementation of Seventh Pay commission. The only
concern is that with the exit of Mr. Rajan, the sole
proponent of AQR, the whole cleaning process might again
slow down and we might again fall back to the erstwhile
practices of accumulation of bad loans and is a major
setback. The onus thus rests with successor of Rajan as
well as with the government to continue with the banking
reform process since there is a considerable amount of
expenses involved in the exercise. According to the media
reports, Moody’s Investors Service have highlighted in a
note (dated 10 June 2016) that the government will have
to infuse Rs 1.2 lakh crore into state-run banks by 2020 to
bolster their balance sheets and make good the losses
suffered by them. This is way higher than an additional Rs
45,000 crore capital infusion plan envisaged by the
government and is thus a major challenge ahead.
38