New Delhi: The government will consider easing tight regulatory control over certain poorly performing state-run banks to help improve their lending capability as the bad debt problem plaguing the Indian banking sector is now firmly under control, finance minister Arun Jaitley said on Tuesday.

The government expects to recover bad loans worth 1.8 trillion in the current fiscal year, the minister said.

Further, state-run banks will monetize non-core assets worth 18,000 crore by December as part of efforts to improve their financial health, said Rajiv Kumar, secretary, department of financial services.

The blueprint for improving bank performance also includes rationalization of foreign branches and combing through all bad loans exceeding 50 crore to see if there is any need to investigate possible instances of fraud.

Jaitley said he will examine requests from banks to ease restrictions placed under the RBI’s prompt corrective action (PCA), after a day-long meeting with the chiefs of public sector banks in New Delhi.

The PCA framework seeks to strengthen banks while keeping them under certain restrictions, including on network expansion, dividend payment and managerial compensation. At present, 11 banks, including Dena Bank, Central Bank of India and Bank of Maharashtra, are under this framework.

“We are passing through a good phase of economic growth…Consumption is up, growth figures are encouraging. Therefore, banking activity is bound to pick up. The bankers also have certain expectations which I have said we certainly will consider. Some said the PCA guidelines should be revisited," said the minister. The government is as keen as bankers to fully utilize the cycle of high consumption, high growth, bad debt recovery and credit offtake for economic growth, Jaitley said.

Bad loans in the banking sector are declining while recoveries have picked up and lenders are confident of maintaining liquidity for financing projects, he said.

The Insolvency and Bankruptcy Code, which came into operation in 2016, not only helped in improving recoveries but is also prompting businesses to pay dues on time so that they do not become non-performing assets (NPAs), the minister said. That is because once the bankruptcy process kicks in, promoters lose management control and cannot bid for their company unless dues are repaid fully.

Jaitley also launched a web portal to help small businesses get quick access to credit. The facility is offered by a consortium comprising Small Industries Development Bank of India and five other state-owned banks. The digital lending platform will approve loans of up to 1 crore to micro, small and medium enterprises in under an hour. The government also announced the launch of a financial inclusion index to foster competition among states on this front.

A statement issued by the finance ministry earlier in the day said Jaitley asked chiefs of state-owned banks to take effective action against corporate crooks and wilful defaulters while feeling free to lend to genuine projects without any fear.

Jaitley said he expects the formalization of the economy through measures like bankruptcy reforms, demonetization and the roll-out of goods and services tax (GST) to help the country sustain 8% growth but private sector lending for investments seems insufficient.

State-owned banks are relevant in their contribution to development and financial inclusion but “support for non-retail banking from other lenders continues to be insufficient", the ministry said, quoting Jaitley.

The minister also said that recovery of dues from borrowers through Debt Recovery Tribunals need to be expedited.

Jaitley’s emphasis on the need for taking stringent action against wilful defaulters and financial offenders comes in the wake of instances of loan defaulters fleeing the country to avoid regulatory action.

“With the recent amendment to the Prevention of Corruption Act, there now need not be any apprehension in the minds of bankers in supporting investments that are in the best interests of the economy, the nation and the banks," the ministry said. At the same time, banks need to ensure clean lending and effective action in cases of fraud and wilful default to justify the trust reposed in them, it said. Banks should keep a special eye on loan defaults above 50 crore to identify if fraud is involved.

As many as 21 top officials of public sector banks attended the meeting with Jaitley.