Having come out with a new plan for debt-hit power distribution companies and taken a slew of steps to salvage languishing road projects, finance minister Arun Jaitley on Monday promised more sector-specific steps to boost banks’ confidence and accelerate credit offtake by industry.
At a meeting with the chiefs of public sector banks (PSBs), RBI officials and secretaries of key departments, Jaitley said the commerce and revenue departments would assess the industries where global factors are causing a stress in the domestic economy and named at least two: Steel and aluminium.
His promise comes at a time lenders perceive that the new plan for state electricity boards which requires state governments to take over most outstanding loans of these utilities could be negative for them in the short term.
The proposal for the National Highways Authority of India to extend “bridge funds”for completion of stressed under-construction road projects is also worrisome for banks as the NHAI would have the first right to recover the loans from developers before banks could. These issues, sources said, were raised by the PSB chiefs during Monday’s meeting.
The government, however, contends that these initiatives and the support to be given to other stressed sectors would without delay enable PSBs and private-sector banks to cut down on their bad loans.
As against the the Reserve Bank of India’s baseline forecast of 12.5% for credit growth in 2015-16, the expansion so far this fiscal has been sub-10%. The growth stood at 9% last year.
Sectors such as infrastructure, steel, textiles, mining and aviation are responsible for the high levels of non-
performing assets (NPAs) on the books of state-owned banks. Jaitley, sources said, wants these banks to “clean up their balance sheets at the earliest”.
Jaitley also instructed the PSBs to lay more emphasis on collateral-backed housing loans, which have grown 18.69% so far this fiscal, and to lend at least Rs 70,000 crore to small entrepreneurs under the Mudra scheme.
The minister asked them to increase farm lending by 20% this fiscal in terms of disbursements and 15% in terms of the number of borrowers.
Up to September, Rs.48.25 lakh crore of agriculture loans had been given, accounting for 58% of the agri-credit target for the year.
On the steel and aluminium sectors, which are facing a drop in global demand, the minister said, “Secretary, department of financial services, would hold discussions with the department of revenue and would decide what more steps are to be taken.”
Banks have already given some suggestions to help out the these two industries, where bad loans are high, he said.
The government had recently imposed a 20% safeguard duty on select steel products to protect domestic producers from the surge in cheap imports, mainly from China. Cheap imports from South Korea, Japan and Russia too added to domestic producers’ woes.
The minister said that once the effect of recent measures to bolster the fortunes of the highways and the power distribution sectors kicks in, the asset quality of banks would automatically improve.
Also, the plan to bring in a more sophisticated bankruptcy code and the RBI’s recent measures to enable efficient restructuring of loans, especially given to infrastructure sector, would help ease the situation, he said.
The gross NPAs of PSBs rose to 6.03% at the end of June, against 5.20% in March this year. Jaitley said the
government has infused the first tranche of capital infusion under the Indradhanush programme.
“The government has been extremely proactive in responding to each of the sectors. Results of these don’t come overnight. Once the process has been set into motion, I think the situation will improve significantly in a reasonable time,” he said.
Monday’s performance review meeting for PSBs also discussed the issues concerning the passing on of the benefit of the RBI’s recent rate cut to borrowers, credit growth, sector-specific financing requirements and banks’ powers to recover assets of defaulters.
On State Bank of India declaring Vijay Mallya a wilful defaulter for not paying nearly Rs 7,000 crore loans to the long-grounded Kingfisher Airlines, Jaitley said banks have all the authority needed to deal with wilful defaulters.