As the bad loan crisis in the banking sector in India has become a challenge for the Government, the Finance Ministry is of view that funding to shore up public sector banks (PSBs) has budgetary constraints. In order to check the growth of bad loan which creates hurdle in their ability to lend more, the Ministry also recommended that lenders should take greater initiative to find buyers for stressed assets as well.
“Funding to shore up public sector banks has budgetary constraints and lenders should take greater initiative to find buyers for stressed assets,” Finance Minister Arun Jaitley on Friday told reports here after reviewing performance of banks with their chief executives.
He kept on adding, saying that some of the non-performing assets (NPAs) or bad loan that weigh on banks’ balance sheets and curb their ability to lend more, can be de-provisioned if the economy recovers. He referred to NPA situation as neither ‘static’ nor ‘permanent’.
Gross NPAs of the public sector banks have surged from 5.43 per cent (Rs 2.67 lakh crore) in 2014-15 to 9.32 per cent (Rs 4.76 lakh crore) in 2015-16. “One of the challenges which the banks did mention that they are facing is to find alternative promoters or buyers. They have been making efforts to do that,” Jaitley said.
He also expressed the confidence that once the situation improves banks will be able to cut rates further. The Finance Minister further said that the Reserve Bank of India (RBI) will take into the account the decline in retail inflation while deciding on interest rates at its policy review meeting on October 4.
With regard to higher capital infusion in public sector banks (PSBs), Jaitley said obviously the more the merrier, but the budget has its limitation.
In a bid to shore up cash-strapped PSBs, the Government last month announced infusion of Rs 22,915 crore capital in 13 lenders including State Bank of India (SBI) and Indian Overseas Bank to revive loan growth that has hit a two-decade low. This is the first tranche of capital infusion for the current fiscal and more funds would be provided in future depending on the performance of PSBs.
In all Rs 70,000 crore in capital is to be invested over four years to contain risks in the banking industry. On the question of farm debt waiver demands, he said, “Highest ever agriculture credit will be provided and Rs 9 lakh crore target that we have set for the current fiscal that we will achieve.”
Jaitley, however, said both the Government and RBI have taken several initiatives and legislative measures including enactment of the Bankruptcy law, changes in the Sarfaesi Act and DRT. “Therefore with these effective steps, the banks will now have to take the intivative.”
With regards to challenges in finding alternate investors for bad assets, Jaitley said, “I think one of the points which was emphasised was that in some cases it has to be done with a greater initiative and if necessary. The lead bankers with the support of the department of financial services would also do the coordination for that purpose selling of NPAs.”
Banks should also keep in their mind the larger interest of the economy while selling assets, he said, adding that asset sale should not stop or paralyse the running establishments because that may itself lead to waste of the investment and also result in job losses.
Jaitley said there are mechanisms for buying stressed assets and if there are companies within the country, whether public or private sector, which I think, is right time to buy at right value, they obviously will make commercial judgment. “And then, some banks themselves have been considering a stressed fund. But, I think, one of the hopes that the banks have is that two major sectors (steel and infra) over the next few months will see a certain positive direction,” he said.
“I think, the current phase which has been reached, at least tells us where the problem is, tells us the magnitude of the problem, it doesn’t put anything below the carpet,” he added.
Jaitley further said, “It gets into a position of readiness to brace up for the challenge and I think the silver lining is the two principle sectors which are contributing to it, namely infra and steel -- proactive steps taken with regard to the sector do indicate that probably at some stage this problem could itself start seeing a reversal.”