RBI expected to clarify on Paytm Payments Bank issue: financial services secy

Vivek Joshi, secretary, department of financial services said that though the finance ministry has not sought any report on the matter, it expects the central bank to issue further clarifications over its action against Paytm Payments Bank in order to calm concerns.

The RBI has barred fresh deposits and top-ups by Paytm Payments Bank with effect from 29 February, citing large scale non-compliance of regulations and supervisory concerns.

“Paytm Payments Bank should follow the law. The start-up eco system should realize that compliances have to be made and law needs to be followed as their operations grow in size," Joshi said in an interview. “I am sure RBI will come out with clarification as the issue also involves so many users. Whether they need to give clarification or not, that’s a different question," the secretary said.

He said overall the banking sector, especially public sector banks, were performing well, with profits set to grow to ₹98,000 crore by December of the current financial year as against ₹70,000 crore in the same period of the previous fiscal.

“We are in a sweet spot. The banking sector’s performance this year is expected to be maintained next year as well, subject to global uncertainties and constantly evolving geo-political situation," Joshi said.

While the government is not looking to infuse more capital into banks in FY25, it may launch qualified institutional placements in those lenders where its equity was high—over 90% in Indian Overseas Bank, Punjab and Sind Bank, and Bank of India. The idea would be to mobilize funds for these banks while bringing down the government stake closer to the mandated 75%.

“The government does not have a plan to directly dilute its equity in banks and raise money for itself. We will see this at a later stage. Also, further consolidation (including mergers of PSBs) is not on cards at present," he said. The secretary said reforms were a constant in the financial sector and that bills in this regard—the Banking Regulation Amendment Bill and the Insurance Laws Amendment Bill—were nearly ready and may be introduced in Parliament by the next government.

“All issues have been widely debated in these bills including provision for composite insurance licence and power to insurance regulator IRDAI to decide on capital requirement for insurance licences in consultation with the government. No further changes may be required when government proposes to introduce this for parliamentary clearance," Joshi said.

The secretary said though no allocation has been made to recapitalize public sector general insurance companies, the expenditure department would be approached for capitalization to the tune of ₹5,000 crore after further evaluating improvements in their financial performance during the early part of FY25. The recapitalization allocation may also be considered in the full budget when it is presented by the new government by June-July.

Joshi said the government may consider merging the bad bank NARCL (National Asset Reconstruction Company) with the asset management company IDRCL (India Debt Resolution Company Ltd) at a later stage to ensure unity of purpose over valuation and purchase of stressed assets and fast-track the process of reconstructing bad assets. The finance ministry is targeting a stressed assets transfer of ₹ 1 trillion to NARCL by 31 March, 2024 and another ₹1 trillion over the next six months in FY25.

He also said that banks have been asked to periodically review the 20 top stressed accounts awaiting initiation of resolution process by the bankruptcy court National Company Law Tribunal (NCLT).

“We would soon come out with guidelines and standard operating procedure (SoP) specifying timelines for making an application for insolvency and getting the case admitted by NCLT. The template would seek banks to file cases in NCLT first even if one-time settlement (OTS) is to be worked out," Joshi said.

On financial inclusion, the secretary said under Viksit Bharata Sankalp yatra, DFS is running six inclusion schemes and the goal now is to financially empower those who have been left out and ensure that disbursement of loans under the schemes gives due importance to skill of the recipients.

On pick-up in investment by the private sector, Joshi said that credit off take data indicates that more private investment is happening in the economy. “The total advances of banks have grown by 13.6% up to December this fiscal against the same period last year. Sectors such as construction, roads, railways, defence, IT, data centres have seen an increase in credit offtake," he said.

“Credit for large investments are still handled by top five public sector banks and private sector banks’ exposure on large projects is minimal. We will ask private banks also fund large projects as, if they concentrate only on giving retail loans, repayment issues may surface. Retail repayment happens only if infra runs well," Joshi said.

On IFCI, Joshi said the cheapest option including closure, merger or reverse merger could be considered while ruling out closure as it is an expensive proposition for the government.