Fragile PSBs to merge with strong peers if worries persist: FM

FM says the banking ssytem govt inherited is very challenging; NPAs a cause of concern, but no need to panic

Finance Minister Arun Jaitley today said consolidation of weaker state-run banks with stronger ones will be the next step if some of the lenders continue to remain fragile despite steps to strengthen them.

Speaking at an event organised by The Economist here, Jaitley also said that though non-performing assets (NPAs) in the banking sector was a cause of concern, there was no ground to "panic".

He said the government was taking steps to strengthen the public sector banks and highlighted the measures, like capital infusion and hiring of professionals, including from private sector. Bringing down government stakes in these banks to 52 per cent would further augment their capital.

The government's first objective was to strengthen fragile public sector banks (PSBs), he said.

"After this (measures) if there is a fragile bank we are looking at consolidation with stronger banks. So it's not that banks don't get a priority. In fact, after inheriting the banks in a fragile situation, we are systematically trying to address each of these problems," Jaitley said.

On NPAs, he said: "It (banking system) is a matter of concern. It's not the main worry. There is no ground to panic. The banking system that we inherited primarily, the public sector banks, was actually very challenging.

"When the economy slowed down, and when you inherit the economy at sub-5 per cent level, it has an impact on the banking system as well... Primarily three or four sectors... (have) added to the NPAs of the public sector banks," he said.

He said the NPA was mainly in sectors like highways, steel, state discoms and textiles.

Jaitley further said the government has addressed the highway issue in a "big manner", large investment is going in highways and it has "started moving".

"As far as the discoms are concerned, I am in touch with each of the states where the discoms need to be reformed," he said, adding government was looking at more steps to check dumping of steel in the country.

Gross NPAs of the state-run banks at the end of March quarter stood at 5.2 per cent compared with 5.63 per cent in December.

Out of Rs 1.80 lakh crore capital requirement estimated by the Finance Ministry for state-run banks, the government would be providing Rs 70,000 crore -- Rs 25,000 crore each in the current and the next fiscal, and Rs 10,000 crore each in 2017-18 and 2018-19 fiscal.