Take more steps to address NPA problem: Arun Jaitley to banks
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New Delhi: Banks are facing problems in finding promoters for large accounts as strategic debt restructuring (SDR) and non-performing assets (NPAs) continue to remain a challenge, the government admitted on Friday while urging bankers to take greater initiative to address the bad debt problem.
Addressing a press meet after the performance review of state-run banks, finance minister Arun Jaitley said banks now have many tools to recover bad debt and should take the initiative to use them effectively, while pointing out the stressed sectors such as steel and infrastructure are showing signs of revival.
“Public sector banks still face the challenge of NPAs. With the various circulars from the Reserve Bank of India, the bankruptcy law, the Sarfaesi (The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, banks have been empowered. Therefore, to take effective steps (for recovery), banks will now have to take the initiative,” he said.
“Banks mentioned the problem they are facing...it is not in the larger interest of the economy to stop an establishment as they are finding it difficult to find alternative promoters and buyers,” he said. “The lead bankers with the support of department of financial services will do the coordination, if necessary.”
Hit by high provisioning for bad debt, state-run banks cumulatively reported a net profit of only Rs222 crore, despite making an operating profit of Rs32,697 crore.
The major contributor to the stressed assets have been the steel and infrastructure sectors, but these are seeing a revival, Jaitley said.
“The balance sheets of major steel companies have started turning after the imposition of the minimum import price. Some of them have started paying interest, though it’s only a part of the interest component. Till they don’t service their interest completely, the accounts cannot be upgraded,” he said.
“Banks are optimistic that with highway sector picking up and the government’s initiatives in the construction sector, there will be an improvement in the situation,” he added.
When asked if NPAs have peaked, Jaitley said the bad debt situation will keep on changing as recoveries happen and accounts get upgraded. “NPA is neither static nor permanent,” he said.
On further capitalization of Indian banks, he said, “Obviously, the more the merrier but the budget itself has its own limitations.”
When asked if low credit growth and a fall in inflation could mean a rate cut in the October policy review, Jaitley said, “I expect when the policy review takes place next month, RBI, and hopefully if MPC (monetary policy committee) is constituted by then, they will collectively keep all these factors in mind.”
Concerned over cybersecurity threats, India’s top cybersecurity officer Gulshan Rai made a presentation to bankers on the steps they can take to avoid cyber attacks.
Recently, Union Bank of India faced a threat but did not suffer a loss from the incident after immediate action was taken, Jaitley said. “Banks are fully seized of the matter,” he added.