New Delhi: Rating agency Moody’s on Tuesday said that the ordinance to amend the Banking Regulation Act doesn’t address the lack of capital at the PSBs, which has prevented them from writing down non-performing loans (NPLs) to realistic levels.
“We continue to expect NPL resolution to be a relatively long drawn out process,” it said. Moody’s said that successful resolution of NPAs either through debt relief or asset sale, will require banks to take a big hit when they write-down the value of these assets to market value.
“However, the state-owned banks’ weak capital levels mean that they do not have the capacity to take these sort of write-downs,” it said.
But, Moody’s said that these measures improve the efficacy of NPL resolution mechanisms and are a credit positive.
It said that the ordinance is broadly along the same vein as a long series of actions that the government and regulators have taken to address NPAs.
“This include past measures to strengthen the functioning of joint lenders’ forum as well as various dispensations to provide banks with flexibility in resolution of NPLs.....strategic debt restructuring and the scheme for the sustainable structuring of stressed assets,” it said.
