Asset rejig tightening will have big impact on banking system: UR Bhat

In a chat with ET Now, UR Bhat, MD, Dalton Capital Advisors shares his views on the public sector banks in particular and the banking space overall. Excerpts:

ET Now: What is the leading to the sharp correction in the banks?

UR Bhat: Well there is talk of RBI coming out with a new guidelines on providing for restructuring because the quantum of stressed assets of the banking system is extremely high. It is probably almost equivalent to the total capital, So if there is a tightening of the restructuring mechanism in the banking system, that would have a huge impact on the banking system, especially the public sector banks.

Plus given the sort of results that we saw in September, the sort of increase in stressed assets that we have seen especially in the public sector banking system does not bode well for increase in profitability or even the sound health of the public sector banking system.

So banks would be under stress and the fact is that more and more of these restructured assets would probably start slipping away if there is not any great movement in pushing ahead with those stalled projects. There has not been enough action on the ground to suggest that these projects are going to really take shape immediately.

Therefore assets which have been restructured in the past they might need to be restructured again. So there is a prospect of further slippages from the restructured part of the portfolio and so that is why public sector banks are facing the brunt.