NPAs bite: Rajan’s successor to be in the hot seat from Day One

With barely three weeks to go for RBI governor Raghuram Rajan to step down, the focus is back on his successor. With the government expected to announce the name of the new RBI governor soon, official sources said the new governor would have to finish the task set by Rajan to clean up banks’ balance sheets at the earliest.

“All RBI governors have been very competitive, but Rajan’s successor will be judged largely by how he finishes the unfinished task of Rajan,” an official source, who did not wish to be identified, told HT.

Non-performing assets— loans that do not yield returns — for public sector banks stood at 7.7% of total advances, or ₹4.76 lakh crore, as of March 31, 2016.

According to the RBI’s Financial Stability Report, bad loans could rise to 8.5% of total advances by March 2017. The RBI has already asked banks to undertake asset quality review to address the NPA problem, besides rolling out debt restructuring exercises.

“The central bank has a long way to go before banks can take firm decisions about the bad loans and what to do with them,” said the source quoted above.

New banking licences is another focus area for the RBI, the baton for which will be passed on to Rajan’s successor.

Ever since Rajan announced his intention to step down at the end of his term on September 4, there has been intense speculation about his successor. Names, including SBI chairman Arundhati Bhattacharya, RBI deputy governor Urjit Patel, former deputy governors Subir Gokarn and Rakesh Mohan, former economic advisor Kaushik Basu, NITI Aayog chairman Arvind Panagariya, chief economic adviser Arvind Subramanian, have been doing the rounds.