The Government on Monday signaled its resolve to take firm action to find solutions to the NPA issue dogging the banking sector with Finance Minister Arun Jaitley announcing that the Reserve Bank of India (RBI) is close to finalising a list of borrowers against whom proceeding can be initiated under the recent insolvency law.
According to various official estimates, around 40 to 50 companies account for major share of the total stressed assets (gross NPAs and restructured standard advances) of Rs9.64 lakh crore with banks as on December, 2016. The NPA issue has impacted the credit growth and investment cycle. Credit growth plunged to a six-decade low of 5.08 per cent in 2016-17 against 10.7 per cent a year ago.
last month, the Government promulgated an Ordinance amending the Banking Regulation Act, 1949, to empower the RBI to resolve the problematic NPA issue. This empowered the RBI to ask banks to initiate insolvency proceedings to recover bad loans and promised more measures to resolve the NPA problem.
“Under the new Ordinance, the RBI is at a fairly advanced stage of preparing a list of those debtors where a resolution is required through the Insolvency and Bankruptcy Code (IBC) process. You will be shortly hearing about it... The RBI is actively working on that,” Jaitley said after meeting heads of PSU banks here.
He also admitted the Government is actively considering consolidation of PSU banks to bail them out in view of the NPA crisis. The assets of several small PSU banks are so stressed that their very survival looks threatened. “Consolidation of banks was not on the agenda as far as this present meeting is concerned. But I can tell you, we are actively working in that direction,” Jaitley told the media.
Public sector banks made a “stable operating profit” of Rs1.5 lakh crore in 2016-17 and had a net profit at Rs574 crore. But the way bad loans are growing, it poses serious problems to their balance sheets.
The Finance Minister pointed out that a few top bankers expressed apprehensions about the infrastructure available for enforcement under the NPA Ordinance. He, however, did not go into the specifics.
According to RBI Deputy Governor SS Mundra, who was present at the meeting, the Ordinance on NPAs essentially involves 2-3 components. “One of the important components was to enhance the size and scope of oversight committee. Also, the identification of the accounts which can be actively taken up under the process. So, on the second point, an internal advisory committee is constituted by the RBI,” Mundra said.
Jaitley further said there are already about 81 cases filed under the Insolvency and Bankruptcy Code (IBC), 2016 and 18 cases out of these have been initiated by financial creditors. “These are already before the National Company law Tribunal (NClT) and since a bulk of the NPAs, about 70 per cent, are either in consortium or in multiple banking arrangement, the speedy resolution is required,” he said. “
On the subdued loan growth, Jaitley made the point that banks are making best efforts through the available infrastructure to give the credit when they are asked for. “That’s the part of the overall demand in the economy also. It is not related to banks alone,” he clarified.
Asked if reduction in lending rate was part of the agenda, Jaitley acknowledged that banks have done fairly well in that direction in the last 6-8 months. On Goods and Services Tax (GST) preparedness of the banks, the FM said various issues related to this will be discussed with the revenue secretary later.
In a related development, Power Minister Piyush Goyal said the Ministry is doing its job to revive stalled and stressed thermal and hydropower projects. “We are close to resolution of stressed thermal power projects soon where developers are not wilful defaulters,” Goyal said here while speaking about three years of the Government’s performance.
The Power Ministry, which is also working on reviving stalled hydro projects, already had extensive discussions with bankers and stakeholders.
According to sources, the Ministry has firmed up a policy for stalled hydro projects to revive 11,639 MW by dispensing Rs16,709 crore till 2024-25.
Additionally, the Government has decided to provide interest subvention of about 4 per cent to developers to turn around hydro projects. The Power Ministry and the Niti Aayog, Goyal said, are jointly working on a policy for next 25 years to ensure energy security. He expects renewable energy capacity to surpass thermal power by 2022.