Describing the bad loan situation of the public sector banks as still challenging, finance minister Arun Jaitley on Friday said “greater initiative” is needed by PSU banks in cases where it is difficult to find buyers or “alternative promoters” for selling stressed assets. He said the situation has started improving in case of steel and infrastructure sectors, which were the main contributors to non-performing assets (NPAs).
“One of the challenges which the banks did mention that they are facing … to find alternative promoters or buyers. They have been making efforts to do that,” he said after a meeting with PSU banks.
“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 NPA),” he said
The government has taken a number of legislative steps to empower banks to recover bad loans including enactment of the Bankruptcy Code and amendments to the SARFAESI Act, and the banks will now have to take initiative, he said.
Gross NPAs of the PSBs 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 of the total advances. Jaitley said the NPA situation is neither static nor permanent and it could see a reversal with the uptick in the economy and the stressed sectors.
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 think it is right time to buy at right value, they obviously will make commercial judgement. “(But) … the silver lining is the two principle sectors which are contributing to it (NPA), 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,” he said.
When asked about unions protesting consolidation in public sector banks, the minister said the government will go ahead with the merger of associate banks and Bharatiya Mahila Bank with the State Bank of India as the proposal has been approved at the highest level by the Union Cabinet.
“All procedure will be followed. The government has already taken decision at the level of the Cabinet to fully support the proposal for the merger,” he said. The government has recently cleared the proposal to merge SBI with its five associate banks and the new Bharatiya Mahila Bank.
In reply to a question on dilution of stake in IDBI Bank, Jaitley said the matter is still under consideration. “The issue is still under the consideration of the government. The decision of the government stands.” The government is also facing protest from bank unions for its plan to divest its stake in IDBI Bank.
Asked about higher capital requirement by banks, Jaitley said obviously “the more the merrier, but the budget has its limitation”. The government has allocated Rs 25,000 crore for capital allocation in the PSU banks in 2016-17.