RAS question
Asset Quality Review (AQR) was conducted by RBI in:
Correct answer: (D) 2015.
Beginning April 1, 2015, the Reserve Bank of India conducted the Asset Quality Review (AQR) to ensure that banks clearly recognised stress hidden in their balance sheets.
Explanation
The Reserve Bank of India conducted the Asset Quality Review (AQR) in 2015 during Governor Raghuram Rajan's tenure. The RBI Bulletin states that it was announced that the review would begin on April 1, 2015, after the Central Repository of Information on Large Credits (CRILC) had been created and asset-classification forbearance for restructured accounts had ended. The aim was to ensure that banks recognised stress hidden in their balance sheets. Reported gross non-performing assets (NPAs) consequently rose sharply: the review did not create bad loans; it required banks to identify and record loans that were already under stress. In the 4R strategy for stressed assets, this was the Recognition step.
Why the other options are wrong
- (A) 2019 is too late. The RBI Bulletin states that it was announced that the Asset Quality Review (AQR) would begin on April 1, 2015, so the review had already been completed by 2019.
- (B) 2017 is not the year of the Asset Quality Review (AQR). The RBI Bulletin states that the review began on April 1, 2015, and had been completed; the 2017 article explains the process and the background to non-performing asset (NPA) recognition retrospectively.
- (C) 2013 is too early. The RBI Bulletin notes that the Central Repository of Information on Large Credits (CRILC) was established in 2014 and the Asset Quality Review (AQR) was announced later, in 2015.
Concept
This question concerns the resolution of stressed assets in the banking sector. It focuses on the recognition of non-performing assets (NPAs) and the regulatory response to stress hidden in bank balance sheets. RAS asks this area repeatedly because it links RBI supervision, the health of public sector banks and the 4R strategy in the Indian economy.