NPA challenge the biggest before Centre: Arvind Panagariya

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.

Arvind Panagariya.

NITI Aayog’s vice-chairman Arvind Panagariya on Monday said the biggest challenge that the government faces is to address the issue of non-performing assets (NPAs), and consolidation in the banking sector can help resolve the problem to some extent.

“The NPA problem is the biggest challenge faced by the current government. This is a gigantic problem,” Panagariya said at an event organised by the Confederation of Indian Industry. “Consolidation of banks will bring down the NPA (non-performing assets) problem by a bit,” he said.

Discussions are on to address the problem of the increasing NPAs, Panagariya said. The finance ministry had last month announced plans to set up an expert group to study consolidation among the PSU banks. The government has indicated that it was open to merging subsidiary banks with parent banks — such as in the case of State Bank of India — and to consolidate weak banks into larger banks.

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State Bank of Saurashtra and State Bank of Indore were merged with their 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. Consolidation in the banking sector is being seen as one option to reduce NPAs and lower the burden on the Centre to capitalise PSU 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 the banks.

Separately, Panagariya said that NITI Aayog is working on a list of state-run companies for disinvestment, and a list for strategic stake sale in such companies could be unveiled in weeks.