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In order to reduce the non-performing assets (NPAs) in the economy, the government is working on plans to bring together major state-owned banks to conduct a large-scale public auction of stressed assets, especially in the steel and power sectors, government sources said. As per the proposal being worked out by the finance ministry in consultation with the banks, the government is keen on cash-rich public sector firms buying a portion of the mortgaged assets within their sector that may be put up for sale by the PSU banks. The idea for public auction of stressed assets was also discussed in the Parliamentary Consultative Committee meeting held last week. The Centre is keen to involve state governments as well. Sources said the finance ministry is in favour of PSUs operating in the steel and power sectors bidding for assets put up for sale by the banks that may be useful for them.
PSUs such as SAIL and NTPC can acquire a portion of stressed assets such as plants or unit being auctioned by the banks. Such acquisitions are expected to be a win-win for both state-owned banks as well as PSUs. While it will help banks clear a part of their bad debts, the acquisition of assets at market-determined prices during an auction will help in expansion of PSUs operating in the sector. The finance ministry has already held deliberations with steel and power ministries on the matter. Sources said the administrative ministries are not too keen on the proposal as it could weaken the financial strength of these companies.
A public auction of bad assets is one of series of proposals that the government and Reserve Bank are working on to prepare a package of measures to alleviate the stress of bad debts. Changes in the existing Joint Lenders Forum for faster resolution of NPAs, a scheme for one-time settlement of bad debts and penal action for defaulters who have siphoned off loans taken for business purposes being other steps. During a meeting of the Parliamentary Consultative Committee on NPAs last week, finance minister Arun Jaitley had said that the core problem of bad debts is with very large corporates, mainly in the steel, power, infrastructure and textile sectors.
The proportion of bad loans has been rising, despite the government having announced the Indradhanush plan of reforms for PSBs. Scheduled commercial banks’ total stressed assets, which comprise gross NPAs as well as restructured standard advances, were much higher at Rs 9.64 lakh crore as on December 31, 2016, as per the finance ministry data. Bad debts have risen sharply in the PSBs, while private banks registered somewhat lower jump in NPAs in the nine months in the current fiscal so far. Public sector banks NPAs surged by over Rs 1 lakh crore during April-December period of 2016-17.
PSU banks’ gross NPAs in the first nine months of current fiscal rose to Rs 6.06 lakh crore by December 31, 2016, from Rs 5.02 lakh crore during the entire year of 2015-16. For the 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. During the meeting on NPAs, members of the Parliamentary Consultative Committee suggested several measures to deal with the issue.