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Rajan says banks need deep surgery, recognising NPAs on their books

Stressing that cleaner balancesheets will lead to future loan growth for banks, RBI chief Raghuram Rajan today said a “deep surgery” is must for the clean-up that would require an “anaesthetic” in the form of recognising NPAs on their books.

Seeking to soothe the nerves of the banks hit hard by the RBI’s diktat to clean up their books by March 2017, the Reserve Bank Governor also said there won’t be a repeat of the asset quality review (AQR) that has hit the banks’ bottomlines — which incidentally has resulted in a steep stock fall and a huge erosion of investors’ wealth.

“We do not envisage a sequence of the AQRs,” Rajan told bankers at a conference organised by industry body CII here this evening.

Using a medical jargon to impress upon the need for such a review, Rajan said a “deep surgery” is needed to clean up and the process of recognising the NPA is akin to an “anaesthetic” needed for the procedure.

Acknowledging that the AQR, under which the RBI has asked banks to recognise some top defaulting accounts as non-performing ones and provide for them, has had a debilitating impact on banks’ numbers and their stocks, Rajan admitted that the earnings of state-run banks do not look “pretty”.

While the Sensex has lost a little over 6 per cent since mid-January 15 when banks started declaring Q3 numbers, the sectoral BSE Bankex plunged close to 8 per cent during the same period.

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