Finance Minister Arun Jaitley on Wednesday said that dealing with non-performing assets (NPAs) of banks is a challenging task and the government was considering several oversight committees to help with resolution of bad debts. The core problem of bad debts is with very large corporates, predominantly in the steel, power, infrastructure and textile sectors, Jaitley said during a meeting of the Parliamentary Consultative Committee on subject of NPAs.
Members of the consultative committee suggested several measures to deal with the issue such as — initiating criminal action against the big wilful defaulters, creating a special bank where NPAs of all the state-owned banks are transferred, allowing the concerned state government to take part in the auction of stressed assets, fixing the gross NPA in the range of 9-10 per cent and not counting restructured assets as NPAs, as per a finance ministry statement.
Public sector banks’ NPAs surged by over Rs 1 lakh crore during April-December period of 2016-17. Gross NPAs in the first nine months of current fiscal rose to Rs 6.06 lakh crore by December 31, 2016, from from Rs 5.02 lakh crore during the entire FY16. The gross NPAs were Rs 2.67 lakh crore in 2014-15. For private sector banks, gross NPAs grew to Rs 70,321 crore by December 31, 2016, from Rs 48,380 crore as on March 31, 2016.
“One of the members said that the Chief Vigilance Officer of the Public Sector Banks be made a part of the Credit Committee of the bank and that first the Board of the bank should take a call about the decisions being taken by their officials rather than investigating agencies directly acting on the basis of their own information,” the ministry said. This step is expected to provide bankers protection from vigilance/regulatory backlash in the event of a considered decision on giving loan turning bad.
The MPs recommended measures be taken to comfort these officials and to enable them to take commercially viable and rational decisions. They suggested creating a Special Performance Vehicle Committee outside the banking system to guide commercial decisions. “It was also suggested that apart from recovery proceedings, criminal action must be taken against the big wilful defaulters and their photographs may also be published. A member also suggested that under the SARFAESI (The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, the focus should be on catching big wilful defaulters,” as per the statement.
Some members suggested that the government must go ahead to establish a bad bank or a Public Sector Asset Rehabilitation Agency (PARA) and it should only consider those NPAs where sector specific reforms do not work. The Economic Survey for 2016-17 has suggested the idea of PARA to resolve the problem of bad loans. On the issue of setting-up a ‘bad bank’, Jaitley said that several possible alternatives exist and the issue is being debated on public platforms.
The minister added that the RBI has set up an oversight committee to look into NPA cases referred to it by various banks. Seeing the response and its performance, the government is considering multiplication of such committees, he said. It was also suggested by various members that since Asset Reconstruction Companies (ARCs) are in private sector and their performance is not up to the mark in many cases, therefore, close monitoring of the operations of ARCs be done through stringent regulations.
NPAs are concentrated with large firms, even though these have shown a declining trend in the last quarter of the current fiscal, Jaitley said. Large corporates expanded their capacity during the boom period (2003-08) but could not face the onslaught of global financial crisis and consequent slow down thereafter.