June 7, 2016 5:27:37 am
THE government is working on plans to identify bankers dealing with “commercially prudent” settlements of bad loans and is willing to infuse additional capital in public sector banks, over and above the Rs 25,000 crore provided in the 2016-17 Budget, Finance Minister Arun Jaitley said on Monday.
Since settlement of non-performing asset (NPA) accounts usually happens at a steep discount, bankers are reluctant to pursue this route, fearing scrutiny by investigative agencies later. “One of the key considerations was that in situations like these, banks should be empowered and consequently should be protected so that they can bring about commercially prudent settlements,” Jaitley told reporters after meeting heads of PSBs and financial institutions for their quarterly performance review.
“We had a detailed meeting with the heads of public sector banks today. One of the key subjects facing the banking situation is the expansion of banking activities, and the position with regard to NPAs was also discussed,” he said.
While banks made operational profits of over Rs 1.4 lakh crore in the last fiscal year, higher NPAs and consequential provisioning from profits against bad assets led to PSBs suffering cumulative net losses of Rs 18,000 crore, he said.
“We expected the heads of banking institutions to be frank and upfront with regards to the situation and that is why RBI has, after quality review of assets, decided upon the provisioning. The operational profit of public sector banks is significant,” Jaitley said.
The government’s focus is on empowering banks legally and protecting bankers who take bona fide decisions based on commercial consideration.
The Bankruptcy Code, passed by Parliament during the Budget session last month, will be operational soon and help banks in faster recovery of loans, he said.
The amendments planned in Debt Recovery Tribunal Act and SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) would further empower the banks legally, he said.
The NPA situation continues to deteriorate even as the government has taken a number of steps, including changing the PSU bank heads’ appointment process, appointing private sector players at state-owned banks and asking banks to invoke personal guarantee of promoters in the event of default. NPAs rose largely due to stress in some sectors, but banks are now seeing improvements in steel and road sectors, said Jaitley.
The Ujwal Discom Assurance Yojana (UDAY) Bond scheme for revival of troubled discoms has been successful in alleviating the pain in the banking sector, he said.
Earlier, Power Minister Piyush Goyal met bankers during the meeting and took stock of the progress on the UDAY scheme.
Minister of State for Finance Jayant Sinha said the review meeting discussed ways to expedite and strengthen the recovery and resolution process, while the government was also considering setting up a stressed assets fund which will buy out bad assets of banks.
On consolidation in the banking sector, Jaitley said the government will shortly approve the merger proposal of State Bank of India and its five associate banks. “We are expecting (approval) shortly,” he said.
The SBI cleared the proposal for merger of subsidiary banks and Bharatiya Mahila Bank last month and sought government’s approval. The country’s largest lender has five associate banks — State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad.
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