BackArun Jaitley signals new approach to NPAs
Finance minister Arun Jaitley says govt will hand over stressed units in power, steel and shipping to well-functioning public sector companies
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New Delhi: The government on Monday signalled a recalibration of its strategy to resolve the bad debt problem by deciding to hand over stressed units in power, steel and shipping to well-functioning public sector companies.
Not only does it signal a toughening of stand vis-a-vis errant promoters, it also marks continuity in the policy on non-performing assets, estimated at Rs6.3 trillion, put together previously with the Reserve Bank of India (RBI) headed by former governor Raghuram Rajan.
After chairing a meeting with public sector bankers and heads of NTPC Ltd, Steel Authority of India Ltd and Cochin Shipyard Ltd, finance minister Arun Jaitley said the idea was to explore the option of banks enlisting the management team of established public sector units.
“This will necessarily involve the banks invoking their powers under the contract converting a part of the debt into equity, taking control of those units and appointing a management team of established people from either current or retired representative who have great experience of those sectors," he said.
Jaitley said the secretaries concerned have been asked to coordinate between the banks and PSU heads. “I think they will start immediately. The banks will invoke their power and somebody has to come up. Today, one of the legitimate problems is whenever some assets is put out there are no takers, so the takers will be created," he added.
According to Jaitley, the government has already forced out some errant promoters to serve as an example. This apart, the overseeing committee comprising experts, set up by the Indian Banks Association in consultation with the RBI, is looking into some high-value stressed assets.
Adil Zaidi, partner at Ernst & Young, said this is a positive move by the government, but counselled caution.
“They should classify the stressed assets as good, bad or very bad and pick the ones which could be revived. There are some projects which are very viable and could have been stalled because of various reasons. There are also projects that are at near completion stage which the public sector banks could look at," he said.
The country’s banking system has amassed a massive pile of non-performing loans in the aftermath of an economic slowdown that, coupled with delays in securing statutory approvals and completing land acquisitions, stalled many projects, squeezed corporate cash flows and made it difficult for borrowers to repay loans.
After taking over as RBI governor, Urjit Patel said that he will have a “firm but pragmatic" approach in dealing with bad loans.
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