 "PSBs get Jaitley's shield for prudent NPA settlement")
Finance Minister Arun Jaitley on Monday assured public sector banks (PSBs) of protection if they settle non-performing assets (NPAs) in a commercially prudent way. Jaitley also told lenders they would be further empowered to settle bad debts this way.
After the review meeting with heads of PSBs, Jaitley said the government would soon take a call on merger of associated banks with the State Bank of India. Sources said a Cabinet note has been moved in this regard.
Besides, a stressed asset fund for banks to deal with mounting bad debts is also in the works.
"One of the key considerations was that… banks should be empowered and consequently should be protected so that they can bring about commercially prudent settlements," Jaitley said.
However, he did not elaborate on the kind of protection that would be provided.
IDBI Bank Managing Director Kishor Kharat said a resolution mechanism was discussed at the meeting, wherein decisions of bankers could be protected. "In today's atmosphere any decision taken by bankers, which is actually in the interest of recovery, if that is subsequently questioned then it becomes difficult to take a decision. Therefore, some buffer needs to be provided," Kharat said.
Jaitley said state-run lenders clocked operational profit in excess of Rs 1.40 lakh crore in the previous financial year and the cumulative losses of Rs 18,000 crore posted by them could be attributed to higher provisioning for bad loans.
Discussions during the two hour-long meeting centered around empowerment of banks, protection for bona fide decisions taken on commercial consideration and finding a resolution, the finance minister said.
Shares of public sector banks rose three per cent on Monday after the meeting. The stocks of Oriental Bank of Commerce went up 2.85 per cent, Union Bank of India 2.52 per cent, Bank of Baroda 1.96 per cent and Andhra Bank 1.56 per cent on the BSE Sensex. Among others, Allahabad Bank gained 1.38 per cent, State Bank of India (1.30 per cent), Punjab National Bank (1.12 per cent) and IDBI Bank (1.09 per cent).
Bad bank
Minister of State for Finance Jayant Sinha said the government is considering a stressed asset fund to deal with stressed assets totaling Rs 8 lakh crore in the banking system.
"We are considering a stressed asset fund. That is something that banks are also working on, and we will certainly see what we can do in terms of solution to expedite the recovery process," Sinha said.
Sinha had said last week in Mumbai that several funds were looking to invest in India's stressed assets. A subsidiary of India's largest lender State Bank of India is reported to be in talks with global private equity major Warburg Pincus and two sovereign wealth funds from West Asia to launch a $3-billion distressed asset fund. India's sovereign fund, National Investment and Infrastructure Fund, may also invest in the proposed bad bank. Jaitley said the Indian Banks' Association would suggest a mechanism to handle settlements of NPAs or bad debts.
"The IBA would be examining some of the suggestions. The government would be also open for discussion...to the suggestions that the banks further put forward with regard to resolving the stress that has been created.
The government is also extending legislative support to help banks overcome the NPA issue."
"Another set of amendments to the debt recovery legislation and securitisation legislation are before Parliament. The joint committee is considering them...we hope to further empower the banks (to deal with NPAs)," he said.
Jaitley said NPAs have risen on account of certain sectoral stress and the PSBs need to be supported fully so that their ability to extend credit and support growth remains sound.
According to government data, gross NPAs of PSBs grew from Rs 2.67 lakh crore (5.43 per cent of gross advances) in March 2015 to Rs 4.76 crore (9.32 per cent) at end of March 2016. The stressed assets (gross NPAs plus standard restructured assets) of these banks grew to Rs 7.33 lakh crore in March 2016 from Rs 6.62 lakh crore a year ago.
Re-capitalisation
The government will not hesitate to increase capital support to banks beyond the amount budgeted if required to help deal with capital adequacy requirements, Jaitley said. The government has committed Rs 25,000 crore in the Budget and "if more funds are required, we will make them available. We stand by that commitment."
Banks have seen some improvements in steel and road sectors and the UDAY Bond scheme has been successful, he said.
Consolidation
On merging SBI and its associate banks, Jaitley said a decision would be taken shortly and the government policy by and large supports consolidation.
According to sources, a Cabinet note has been moved with regard to the merger of associate banks of SBI as well as the newly created Bharatiya Mahila Bank with itself. The merger proposal may be taken up by the Cabinet towards the end of this month.
"We are looking at the SBI proposal at the moment. It is with the government and it will respond. The government's policy by and large supports consolidation. We are expecting approval shortly," he said.
The meeting also reviewed the progress of financial inclusion schemes like Stand-up India and Mudra, credit flow to the industry.
