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Stress in banking should not be alibi for privatization, says panel

The finance ministry informed the panel that occurrence of fraud has declined sharply and asset quality has improved significantly.Premium
The finance ministry informed the panel that occurrence of fraud has declined sharply and asset quality has improved significantly.

The panel said the situation in the banking sector was no doubt grim, but it remained optimistic that as most of the large legacy bad loans get resolved either through bankruptcy resolution process or outside it, the consequential recoveries will help the banks to shore up their balance sheets

The stress in the banking sector should not be an alibi for privatizing state-owned banks; instead, they should be empowered to deal with the present challenges, a parliamentary panel said in a report tabled in Lok Sabha on Tuesday.

The standing committee on finance chaired by Bharatiya Janata Party (BJP) leader Jayant Sinha said in its report that the situation in the banking sector was no doubt grim, but the panel remained optimistic that as most of the large legacy bad loans get resolved either through bankruptcy resolution process or outside it, the consequential recoveries will help the banks to shore up their balance sheets.

It is necessary and prudent that these large legacy non-performing assets are segregated for resolution, and the balance sheet of banks sanitized, allowing them to move ahead with their regular business, the report said.

The committee recommended that the Reserve Bank of India—the regulator—and the government—the shareholder—should formulate coherent policy responses that will enable and empower the banks.

“The committee would like to emphasize that the present crisis, which the committee believes is transient, should not become an alibi for privatization of public sector banks," the report said.

The suggestion comes at a time the government is working on privatizing two state-run banks.

The panel said, quoting information from the finance ministry, that financial health of state-run banks has improved significantly from the end of FY18.

Gross non-performing assets have reduced from 8.96 trillion in March 2018 to 5.77 trillion in December 2020, and a recovery of 2.74 trillion has been made since March 2018 till December 2020.

The finance ministry also informed the panel that occurrence of fraud has declined sharply and asset quality has improved significantly.

As against two out of 21 state-run banks in profit in March 2018, 11 out of 12 state-run banks were in profit in December 2020, the report said, quoting the ministry.

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