Govt bank write-off: Expert group to clean up, strengthen banks

Finance Minister says won’t spare loan defaulters, govt is considering suggestion to let public sector banks issue ESOPs

By: ENS Economic Bureau | Gurgaon | Updated: April 12, 2016 2:39 pm
At retreat of heads of public sector financial institutions. (PTI Photo) At retreat of heads of public sector financial institutions. (PTI Photo)

Finance Minister Arun Jaitley on Saturday said the government will immediately set up an expert group to examine consolidation of public sector banks and consider allowing PSBs to issue employee stock options (ESOPs).

He said banks have to take all measures to clean up their books by effecting recoveries. The government, he said, is also working on strengthening the debt recovery mechanism to deal with non-performing assets (NPAs).

Speaking to reporters at the end of the two-day Gyan Sangam, a retreat of heads of public sector financial institutions, Jaitley said the country needs strong banks rather than a large number of banks.

WATCH| RBI Governor Raghuram Rajan On Bad Loans

“The first (issue) relates to consolidation of several banks. The bankers themselves… have strongly supported the idea. You need strong banks rather than numerically a larger number,” he said. “What is the strategy for this consolidation… bankers themselves have suggested an expert group to immediately go into this issue,” he said.

The Finance Ministry indicated recently it was open to merging subsidiary banks with parent banks — as in the case of State Bank of India — and to consolidate weak banks into larger banks. Consolidation of weak banks also reduces the burden of capitalisation on the government.

State Bank of Saurashtra and State Bank of Indore were merged with parent SBI in 2008 and 2010 respectively. SBI is now left with five associate banks — State Bank of Patiala, State Bank of Hyderabad, State Bank of Bikaner and Jaipur, State Bank of Travancore and State Bank of Mysore.

Another suggestion that the government will consider is to allow PSBs to issue ESOPs. “The third thing which the government independently is considering, again at a very advanced stage, is the whole idea of ESOPs for bank employees,” Jaitley said.

To boost employee morale and performance, the SBI last year suggested that the government allow PSU banks to give ESOPs to their top management and share a higher proportion of profits with employees.

Jaitley said the government is working to strengthen the bad loan recovery process at the banks. The Finance Ministry has estimated that the banking sector has Rs 8 lakh crore of stressed assets, out of the total outstanding loan book of Rs 69 lakh crore. Stressed assets include NPAs as well as loans that are written-off by banks.

“In the current global environment, banks have to take all measures to clean up their books by effecting recoveries,” he said.

“There is a suggestion for some amendments to the SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act). There is also a suggestion with regard to expediting the DRT (Debts Recovery Tribunal) process by some more amendments to the Act. Department of Financial Services is working in that direction, it is in a fairly advanced stage,” he said.

“As far as recovery is concerned, whatever steps have to be taken… banks have various rights for recovery through DRT, SDR… Neither loan waiver has been given to anyone, nor will be given,” he said.

Gross NPAs of public sector banks stood at Rs 3.60 lakh crore at December-end, up from Rs 2.67 lakh crore at the end of March 2015. Due to mounting bad loans, profitability of public sector banks has taken a hit.

On February 16, the Supreme Court took suo motu cognisance of a report in The Indian Express which disclosed that Rs 1.14 lakh crore of bad debts had been written off by state-owned banks between financial years 2013 and 2015. Calling it “a big fraud”, a bench headed by Chief Justice T S Thakur ordered the RBI to share with it names of the biggest defaulters, who, the court said, lead “lavish lifestyle” despite not repaying the loans.

Jaitley said the government is also setting up an expert committee to recommend how public sector banks too can go in for best recruitment, such as campus recruitment which is available to private sector banks.

The government has already constituted a Bank Board Bureau which seeks to reform the appointment process for top posts and improve governance at public sector banks. Vinod Rai, former Comptroller and Auditor General, has been appointed chairman of the bureau, which has six other members.

The second edition of Gyan Sangam — the first was held in Pune last year and was addressed by Prime Minister Narendra Modi — debated issues such as restructuring and consolidation in state-owned banks, recovery of NPAs, sale of non-core assets and credit growth.

Participants were divided into five working groups — one each on Restructuring, M/A (Mergers and Acquisitions), NPA Management and Recovery, Technology, Digital and Financial Inclusion, Credit Growth and Risk Management.

Top officials of the Finance Ministry, RBI Governor Raghuram Rajan and senior management of all PSBs attended the Gyan Sangam.

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  1. S
    Self.Annihilation.of.brahmins.have.started
    Mar 5, 2016 at 4:50 pm
    Really? Even the defaulting DDCA?
    Reply
    1. A
      Arun.JOOT.LIE
      Mar 5, 2016 at 4:53 pm
      Boring drama statement. That means he is going to do the exact opposite. That statement is to fool people. How many movies have we seen that happening. And how dare he will use the same KRAP.
      Reply
      1. M
        MyTake
        Mar 5, 2016 at 10:37 pm
        It should be made a commercial venture with tax friendly schemes.
        Reply
        1. A
          ak dev
          Mar 5, 2016 at 4:57 pm
          Does anybody believe this guy?
          Reply
          1. V
            Virendra Sason
            Mar 5, 2016 at 5:55 pm
            WHY GOVT OF INDIA OPEN THE LIST OF LOAN DEFAULTER INDUSTRIALISTS/CORPORATE HOUSES WISE? PUBLIC MUST KNOW IT AS IT IS THEIR MONEY.
            Reply
            1. A
              Ayyanperumal Goldmass
              Mar 6, 2016 at 12:53 am
              see this....
              Reply
              1. C
                Col S
                Mar 6, 2016 at 3:24 am
                Government is ROBBING PEOPLE to PAY business and BANKS. Write of f of LOANS ( NPAs) , taxing EPF and HURTING tax payers and small SAVERS , is like ROB PETER to PAY PAUL. Mr MODI, FM and SHASH must realise that they are not RULERS but ADMINISTRATORS. Result is BJP, MODI, RBI. BANKS and RBI have lost CREDIBILIT. People think that this NEXUS is looting tjerm ang making them pauper.
                Reply
                1. G
                  GNS
                  Mar 5, 2016 at 11:49 pm
                  Vinod Rai is a good choice but will he be allowed to work freely ? Main problem with PSU banks is CONSTANT interference by politicians of ALL hues and especially through the Ministry of Finance ( MOF ). Most banks' overseas Branches in London,New York,HK and Singapore are used by senior politicians and senior officials of MOF as a hospitality lounges for travel,leisure and other services.I heard it from an ED of a PSU bank who was my boss earlier in an overseas branch of a PSU bank.One even wanted us to arrange mage services in Bangkok and we did not.The umbilical cord between PSU banks and MOF must be cut and the protocol must be established so that ALL PSU banks report to RBI and RBI reports to FOM and the seats on PSU bank boards by FOM appointees must be dispensed or given to RBI.Then only real improvement may happen.The rot is at the top,as always. Still our PSU banks at lower levels are not as corrupt as the Railways and they can be saved with good examples of governance.
                  Reply
                  1. I
                    Indian
                    Mar 5, 2016 at 4:54 pm
                    Please infuse more money, anyway who cares its my tax money right. Besides with the newly pumped money, more loans can be lent out and can be written off as bad loans.
                    Reply
                    1. J
                      Jayesh Shah
                      Mar 6, 2016 at 2:49 am
                      Excellent move. Very pragmatic approach to resolve NPA issue.
                      Reply
                      1. K
                        K.J.Johnson
                        Mar 6, 2016 at 12:44 am
                        The Finance Ministry and R B I is thinking on the lines recovery of bad debts, to wipe out the existing "Non Performing ets". That us excellent as their part is concerned ! , but not enough because they are yet to think on the lines of bringing a preventive mechanism for reducing the NPA in the future .
                        Reply
                        1. K
                          k basu
                          Mar 6, 2016 at 4:56 am
                          The PSU banks are zombie banks kept alive by annual government cash infusions. That is throwing money down the drain. We should ask how come private banks have NPA ratios of around 3% compared to 12% for the PSU banks. The likely conclusion is as a combination of corruption by babus , netas and mismanagement. In the US such banks are immediately liquidated by the bank regulator and merged into healthy banks with the stockholders losing their ownership stake. Both the NEA and the RBI governor are extremely smart and competent but unfortunately not in a position to voice their opinion. How come nobody else is asking why the government is not selling through an IPO all its shares in each PSU Bank .
                          Reply
                          1. K
                            kulaputra kulaputra
                            Mar 6, 2016 at 12:29 am
                            One of them is a Rajya Sabha MP by the name of VIjay Mallya
                            Reply
                            1. K
                              kulaputra kulaputra
                              Mar 6, 2016 at 12:30 am
                              The best is for all banks to be privatised or closed. RBI becomes stricter and then banks really have to compete since big brother is not going to be there. Become more professionals. Think of radical solutions - not tinkering.
                              Reply
                              1. R
                                Rajeev Kumar
                                Mar 5, 2016 at 6:37 pm
                                All of 1.14 lakh crore has been eaten up by Bankers,cronies of Govt,Ministers,their sons etc etc.They are of all parties, so no question of impounding their ets or sending them to jail by Govt.Supreme Court is only hope if they intervene to catch the crooks.
                                Reply
                                1. S
                                  seshadri
                                  Mar 6, 2016 at 3:07 am
                                  MAKE A LIST OF DEFAULTERS OF GOVERNMENT BANKS BY MORE THAN 1 CRORE AND IMMEDIATELY START SIEZING THEIR PPORT/ETS OTHERWISE THEY WILL RUN AWAY
                                  Reply
                                  1. I
                                    Indian
                                    Mar 6, 2016 at 1:15 am
                                    The presently appointed EXPERT COMMITTEE too will take a FEW CRORES from the industrialist who LOOTED the more than 1.25 LAKH CRORE from BANKs like the BANK EMPLOYEES who took few CRORES to give the LOAN. ........................ The NPA RIGHT OFF is becoming as big SCAM as 2G and COALGATE and if Mr MODI led BJP fails to recover the 1,25 Lakh Crore NPA LOOT will be reduced to 44 seats in Parliament Election 2019.
                                    Reply
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