Home / Industry / Banking /  Government mulling innovative ways to deal with banks’ NPA provision

New Delhi: The finance ministry is examining a proposal to find innovative ways for dealing with burden of NPA provisions by issuing provision shore-up certificates (PSC) to banks.

With the help of this instrument, the operating profit of bank is saved from erosion and the lender would be able to focus on lending activities as being in financially good shape.

Under this scheme, the bank concerned will get PSC to the extent of its provision against the bad loans and conserve its capital, officials said, adding that this capital can then be used for expanding core business of lending.

This is at the “idea stage" and various aspects of this model are being examined, officials said.

This would be a kind of capital infusion not in one go but spread over various quarters. A special trust would take over the underlying provisioned assets for monitoring, recovery and unlocking value, using the Insolvency and Bankruptcy Code, they said.

The instrument would be used only against NPAs and not for total provisions which also include those for employee benefit etc, officials added.

Besides, there is a fundamental difference between the proposal to set up a bad bank that takes over the entire stressed asset and the PSC mechanism. In the latter’s case, the bank only assigns the stressed assets and will receive PSCs only to the extent of provisions made.

The gross non-performing assets (NPAs) of all the banks rose to Rs8,40,958 crore in December 2017, led by industry loans followed by services and agriculture sectors.

Gross NPAs of scheduled commercial banks as on 31 December, 2017 due to loans to industry were at Rs6,09,222 crore, accounting for 20.41% of the gross advances. That was followed by Rs1,10,520 crore (5.77%) dues from services sector, Rs69,600 crore (6.53%) from agriculture and allied activities, Rs14,986 crore from other non-food credit and Rs36,630 crore (2.01%) from retail loans.

The highest amount of gross NPAs was for country’s largest lender State Bank of India (SBI) at Rs2,01,560 crore. Among others, Punjab National Bank (PNB) was at Rs55,200 crore, IDBI Bank Rs44,542 crore, Bank of India Rs43,474 crore, Bank of Baroda Rs41,649 crore, Union Bank of India Rs38,047 crore, Canara Bank Rs37,794 crore and ICICI Bank Rs33,849 crore.

Indian Overseas Bank had gross NPAs of Rs31,724 crore, Central Bank of India Rs32,491 crore, UCO Bank Rs24,308 crore, Allahabad Bank Rs23,120 crore, Andhra Bank Rs21,599 crore and Corporation Bank Rs21,818 crore.

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