The government could likely bring in big-ticket reforms in banking soon, and may announce specific measures to address the problems faced by the industry, which has been reeling under bad loans. In fact, higher provisioning for bad loans led to banks reporting over Rs 12,000 crore in losses during the October-December quarter.
“There are a series of banking reforms that I am going to announce soon. You may find some of the things in the coming days,” finance minister Arun Jaitley said during a media interaction at the Make in India event on Sunday.
Jaitley is expected to announce these measures during his budget presentation on February 29.
Jaitley was responding to questions on how public sector banks have fallen short on performance and that HDFC Bank, the country’s second-largest private lender, now has a market capitalisation equal to that of all public sector banks put together.
“If you ask me what should the government’s role be with regard to banks, I would say at arm’s length. Whether the government should interfere in the running of a bank, I would say no. But India has not yet reached a stage where the government can pull out completely from banks. We will do all we can to lower the government’s shareholding in banks and bring it to 51-52%,” Jaitley said.
The Centre currently holds more than 75% in most banks.
State-owned banks have seen a sharp fall in profits, with State Bank of India’s (SBI’s) net declining 62% and Punjab National Bank’s profit plunging 90% during the quarter ended December 31, 2015 mainly due to a steep rise in non-performing assets (NPAs)— loans that do not yield returns .
The Reserve Bank of India has already laid down strong measures that call for recognising a loan as bad even before a default is declared, to avoid subsequent impact and to make higher provisions. RBI governor Raghuram Rajan has also asked banks to be prepared for strong measures.
A Religare report recently said that Indian banks would need to go for a haircut of about Rs 100,000 crore, of which Rs 93,000 crore is from state-owned banks alone.
On Saturday, Bank of Baroda, the country’s second-largest lender by assets, reported a loss of Rs 3,342 crore during October-December, highest ever in any quarter, due to an almost five-time jump in provisions. The bank had reported a net profit of Rs 332 crore a year ago.