Banks struggling to find promoters for ailing firms: FM

Says funding to shore up PSBs has budgetary constraints

Against the backdrop of a challenging’ non-performing assets situation, Finance Minister Arun Jaitley on Friday said that public sector banks were finding it difficult to find new promoters for those companies where lenders had gone in for strategic debt restructuring (SDR).

The FM also said there were fiscal limits to recapitalisation of state-owned banks, even though it’s desirable to provide much more funds to them. “Banks are finding it challenging to find alternative promoters and buyers. They have been making efforts,” said Jaitley on Friday after his meeting with the heads of PSBs.

The SDR scheme, put together by the Reserve Bank of India, allows a consortium of lenders to convert a part of their loans in an ailing company into equity, with the consortium owning at least a 51 per cent stake.

The select SDR cases include Jaiprakash Associates, AMW Motors, IVRCL, Electrosteels, Visa Steel, Jyoti Structures, Monnet Ispat and Power, Lanco Teesta. The finance minister said state-owned banks still faced challenges of high NPAs, adding that the government and the RBI had taken several initiatives and legislative measures, including enactment of the bankruptcy law and amending the Sarfaesi Act and the Debt Recovery Tribunal Act to empower banks.

In the first quarter, PSBs as a whole made an operating profit of Rs 32,967 crore. But after provisioning and taxation adjustments, the net profit was Rs 222 crore.

Jaitley was hopeful that once the situation improves, banks would be able to transmit the full impact of a rate cut by the RBI. He said the RBI in its policy meet on October 4 should consider easing retail inflation while deciding the repo rate, which currently is 6.5 per cent. “I expect when the policy review takes place next month the RBI, and hopefully if the monetary policy committee is constituted by then, will keep all these factors in mind,” he said.    

It is still not clear whether the policy rate next month will be set by the RBI or the MPC.
    
However, Economic Affairs Secretary Shaktikanta Das had on Thursday said there was a good possibility that members of the MPC would be appointed before October 4.

 

The consumer price index-based inflation eased to a five-month low of 5.05 per cent in August. Jaitley evaded a question on Congress Vice-President Rahul Gandhi’s demand for a waiver of farm loans in Uttar Pradesh and instead rolled out statistics on agricultural credit. Against Rs 9 lakh crore targeted for farm loans this year, banks provided 30 per cent of it in the first quarter of the current financial year, he said.

When asked that Fitch in its recent report pegged banks requirements for capital at $90 billion (over Rs 6 lakh crore) by 2019, Jaitley said “the more the merrier, but there are fiscal constraints.”

The government last month announced infusion of Rs 22,915 crore in 13 lenders including State Bank of India and Indian Overseas Bank to revive loan growth that has hit a two-decade low. This is part of Rs 25,000 crore announced in the Budget for 2016-17. In all Rs 70,000 crore in capital is to be invested over four years till 2018-19 to contain risks in the banking industry.

The quarterly meeting reviewed the overall performance of public sector banks in the first quarter, besides the progress of credit growth, asset quality and overall challenges.

The steel and infrastructure sectors contributed the most to the NPA stress, according to the analysis by banks. Jaitley said the situation in the steel sector was improving after the minimum import price was imposed earlier this year.

“Major steel companies’ balance sheets have started turning and many have started paying interest. It seems to be a positive sign,” said Jaitley. He added, “Probably at some stage this problem could start seeing a reversal.”

He said the highway sector was looking up. The Cabinet had last month approved release of 75 per cent of the amount in dispute against bank guarantee and provided for a conciliation board comprising independent domain experts in the construction industry.

Housing loans by public sector banks rose by 8.2 per cent in the first quarter of the current financial year, an official said.

Gross NPAs of the PSBs went up from 5.43 per cent (Rs 2.67 lakh crore) in 2014-15 to 9.32 per cent (Rs 4.76 lakh crore) in 2015-16 of total advances.

“The NPA situation is neither static nor permanent. The current phase at least tells us where the problem is. It doesn’t push anything below the carpet,” he added.

The net combined loss for the 25 listed PSBs was Rs 1,193 crore in the first quarter against a net profit of Rs 9,449 crore in April-June 2015. Stressed assets in the banking system rose to 12 per cent in June from 11.4 per cent at the end of March.

An expert presentation was also made on cyber security in view of fresh challenges, besides a discussion on financial inclusion and the literacy and the position with regards to credit to medium and small enterprises.

On reports of fudging of Jan Dhan accounts, Jaitley said four PSBs were investigating whether money in some of these accounts was deposited by account holders themselves or by business correspondents to keep the number of zero-balance accounts low.

“After that the banks will give their report to the Department of Financial Services,” Jaitley said.

He said there were 240 million Jan Dhan accounts and  Rs 42,000 crore had been deposited in them. He said such a huge sum could not have come about by depositing Re 1 in some accounts.

In reply to a question on the dilution of the government’s stake in IDBI Bank, Jaitley said the matter was under consideration.

He said the government would go ahead with the merger of associate banks and Bharatiya Mahila Bank with the SBI as the proposal had been approved by the Union Cabinet. “All procedures will be followed. The government has already taken a decision to fully support the proposal for the merger,” he said.