India’s top financial sector executives on Tuesday asked the government to set up a national behemoth that would consolidate bad loans to clean up bank balance sheets, more tax breaks to encourage household savings and sale of stakes in Life Insurance Corp (LIC) by listing it on exchanges.
"There were some suggestions on setting up of 'National Asset Management Company'," financial services secretary GS Sandhu said after the pre-budget meeting with heads of banks and financial institutions with finance minister Arun Jaitley.
Bankers also asked the government to raise the exemption limit under Section 80C of the Income Tax Act from the current Rs 1 lakh, which has remained unchanged for a decade and its real value has declined sharply.
The proposed Asset Management Company will take over large non-performing assets (NPAs) of banks and help in reviving companies ridden with bad debts.
Gross NPAs — shorthand for loans that could turn bad — of Indian banks have soared from Rs 69,000 crore in 2009 to an estimated Rs 2.8 lakh crore as on March 31, 2014. Between October and March, an estimated Rs 60,000 crore of bad assets — about 15-20% of overall NPAs of banks — came up for sale, which is almost four-times of last year’s level.
"There was discussion on NPAs. There was also proposal for setting up of National Asset Management Company for improving the performance of DRTs (debt recovery tribunals) to collect loans," HSBC India country head Naina Lal Kidwai said after the two-and-half hour long meeting.
Suggestions were also made for strengthening of present SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) to ensure fast recovery of bad loans, she said.
Kotak Mahindra Bank managing director Uday Kotak said the government should consider listing of insurance behemoth LIC over the next few years. "Over the next few yeas the government should seriously consider listing of LIC. The kind of money government can raise by listing LIC is significant, it can fund financial needs of public sector banks as well as fiscal deficit," he said.
"This necessarily need not be in July Budget, but over the next few years. Listing of LIC may be a game changer in financial sector."
Public sector banks requested government for capital infusion and long-term instrument for financing infrastructure sector.