The government has signaled its intention to get tough on economic offenders who have burdened India’s banking system with bad loans, but there has been no concrete action to tackle the non-performing asset (NPA) problem.
While presenting the Union Budget 2017 on Wednesday, finance minister Arun Jaitley said the government will bring a new law which will allow agencies to confiscate domestic assets of economic offenders, who flee the country. High-profile economic offenders like industrialist Vijay Mallya have been refusing to come back to the country despite cases against them.
Indian banks, especially the public sector lenders, have had a tough run in the last few years with the surge in bad loans. While the finance minister underlined the need to strengthen these banks, there was no concrete announcement on the measures that the government is planning to take to ensure that the level of bad loans comes down.
This is disappointing for the banking sector – already struggling with the aftermath of demonetisation -- that needs to quickly get back to the business of lending.
Jaitley earmarked Rs 10,000 crore for recapitalisation of the government banks. While he said a higher sum will be allocated if needed, the sum is piffling compared to the Rs 1.8 lakh crore required by 2018-19 as recapitalisation amount.
The level of Non Performing Assets – loans that do not fetch any returns — has been steadily rising. The gross NPA of the state banks increased to Rs 5.59 lakh crore (11.24 per cent of advances) as on June 2016. It was Rs 5.02 lakh crore or 9.84 per cent in March.
The Economic Survey on Tuesday proposed setting up of a centralized Public Sector Asset Rehabilitation Agency or (PARA) to address the NPA issue. The proposed agency or asset reconstruction company (ARC) should focus on the largest and the most difficult cases and make politically tough decisions to reduce debt, the survey said.