Out of the total advances of about Rs 69 lakh crore in the banking sector, the stressed assets in the system are about Rs 8 lakh crore and the government is working to strengthen the resolution and recovery process to deal with the problem, Minister of State for Finance Jayant Sinha said on Friday. He said the stressed assets in the financial system have now stabilised and the government knows how to deal with them. Stressed assets include NPAs as well as loans that are written-off by the banks.
“Rs 8 lakh crore stressed assets is for the entire scheduled commercial banks, public and private sector banks across the system. The system has roughly about Rs 69 lakh crore of loan book,” Sinha said at Gyan Sangam, a two-day retreat of heads of public sector financial institutions. Finance minister Arun Jaitley will address the second edition of Gyan Sangam on Saturday.
The government now has a “very good control” over the stressed assets problem and it is working closely with the Reserve Bank of India to deal with it, he said. Sinha said the banking sector is in a “very comfortable position” and the government is open to provide extra capital to public sector banks if required.
“As of now between the support that the government is providing to public sector banks and the capital cushion that the private sector banks have, we feel that all of our banking sector is in a fairly comfortable position,” Sinha said. Position of banks will improve further as the government strengthens the resolution mechanism and puts in place a bankruptcy code, he said.
In the budget 2016-17, the government has announced capital infusion of Rs 25,000 crore for the public sector banks. The finance ministry has indicated that it may provide Rs 5000-7000 crore of extra capital if required. The government will provide capital based on three parameters — capital adequacy, performance of the banks and projected capital growth, he said.
The changes in the manner in which banks calculate their Tier-I capital, announced by the RBI on Tuesday, would further strengthen banks’ balance sheets, he said. The RBI’s move is expected to provide state-owned banks an extra capital cushion of about Rs 25,000 crore.
Financial services secretary Anjuly Chib Duggal said banks and the government would discuss ways to deal with the issue of NPAs. In its asset quality reviews, the RBI has examined the issue of stressed
assets and NPAs for state-owned banks, private banks as well as non banking finance companies
“Its (resolution of bad loans) a continuous process. Banks are very aggressively engaged… NPAs are not necessarily a reflection of due diligence not done, an account could have gone bad for many reasons. So that’s the larger question,” Duggal 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. Gyan Sangam will debate issues such as restructuring and consolidation in the state-owned banks, recovery of NPAs, sale of non-core assets and credit growth.
The idea of organising such a retreat is to provide an informal academic environment, which can bring out the creative best of the minds of professionals and regulators, the finance ministry said on Thursday.
“The participants have been divided into 5 Working Groups. The groups have been formed keeping in view the outcomes related to access, efficiency, stability, profitability/value creation. The groups include one each on restructuring, mergers and acquisitions, NPA management and Recovery, Technology, digital and Financial Inclusion, Credit Growth and Risk Management,” the finance ministry said.