NEW DELHI: The government will take steps to protect and empower public sector banks (PSBs) to take commercially viable decisions while dealing with the surge in bad loans, finance minister Arun Jaitley said on Monday after a review meeting with PSB chiefs.
“We must support them fully so that their ability to support (economic) growth remains sound,” he said.
Banks have offered a number of suggestions on dealing with stressed assets, and the Indian Banks Association (IBA) will soon chalk out a mechanism to allow speedy settlement of such assets, he said.
“The IBA would be examining some of the suggestions… One of the key considerations was that in situations like these, banks should be empowered and consequently protected, so that they can bring about commercially prudent settlements,” he said.
According to a Reuters report, a proposal has already been made on how to deal with stressed assets, based on consultations between the financial services department and the IBA. A five-bank steering committee will examine bad loans and recommend appropriate action. In case of adverse findings, a change of management would be initiated and a search launched for a bidder for the business. If no viable buyer can be found, and the audit finds no wrongdoing, a deep restructuring would be pursued with the existing promoter, according to the document based on the consultations.
Bankers said the goal was to provide a level of legal protection for them in deciding whether to take major ‘haircuts’ on loans that go sour. “The situation is very grim ,” said one senior banker who attended the meeting. The main issue, he said, was “who will take, and how much, haircut”.
Jaitley said the government has overhauled its bankruptcy law, which will make it vastly easier to wind up companies and help banks recover bad loans.
PSBs reported Rs 18,000 crore in losses in 2015-16 on account of provisioning for non-performing assets (NPAs) — loans that do not yield returns. Provisioning apart, the banks registered an overall combined operating profit of Rs 1.40 lakh crore in 2015-16.
On the issue of recapitalisation of banks, the finance minister said the government has committed Rs 25,000 crore in the budget and “if more funds are required, we will make them available.”
Speaking on the sidelines, minister of state for finance Jayant Sinha said the government is also considering setting up a stressed-assets fund to help banks.