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Look for new promoters for stressed assets, Arun Jaitley tells public sector banks

Underlining the resolution of stressed assets, finance minister Arun Jaitley on Friday asked public sector banks (PSBs) to augment their efforts to find alternative promoters or managers for straying businesses.

By: | Updated: September 17, 2016 6:34 AM
With the highways and steel sectors showing signs of revival, Arun Jaitley said a lot of the provisioning itself would get deprovisioned, and the accounts itself would get upgraded, reducing additional capital requirements for banks. (Reuters)

With the highways and steel sectors showing signs of revival, Arun Jaitley said a lot of the provisioning itself would get deprovisioned, and the accounts itself would get upgraded, reducing additional capital requirements for banks. (Reuters)

Underlining the resolution of stressed assets, finance minister Arun Jaitley on Friday asked public sector banks (PSBs) to augment their efforts to find alternative promoters or managers for straying businesses. After reviewing the performance of these banks for the June quarter with their chiefs, the minister, however, said that once the economy recovered, a part of their non-performing assets (NPAs) could be “de-provisioned” in order to improve their lending ability. The gross domestic advances of PSBs declined 2.5% in the June quarter from the previous one, even as the economy is in dire need of private investments in various sectors.

The Reserve Bank of India (RBI) had earlier advocated “creative search” for new management teams, including from the public and private sectors, to resuscitate stressed assets. “Where there are multiple banks involved with a particular debtor, the lead banker with the support of the department of financial services, if so necessary, would do the coordination (for finding buyers for assets),” Jaitley said.

psb

Both public as well as private sector companies could make a commercial judgement on many running businesses that banks are trying to dispose of, he said. Bankers have not been able to sell many running businesses under default due to a steep haircut demanded by prospective buyers, the chairman of a leading PSB told FE, asking not to be identified.

The gross NPAs of 27 PSBs had doubled to R5.97 lakh crore as on June 30, 2016, from the year ago period, after the RBI started the process of asset quality review (AQR) from Q3FY16 to clean up their balance sheets by March 2017. The fresh slippages of PSBs in the June quarter is nearly Rs 1 lakh crore. The gross domestic NPAs of PSBs rose to 11.24% of gross domestic advances as on June 30, 2016, from 9.84% as on March 31, 2016. This has taken a toll on the PSBs, which posted a net loss of R17,991 crore in FY16, against a net profit of Rs 30,869 crore in the previous year. In Q1FY17, they made net profit of only Rs 220 crore. “Banks will now have to take greater initiatives to recover bad loans,” Jaitley said.

With regard to higher capital infusion in PSBs, Jaitley said obviously “the more the merrier, but the budget has its limitation”. If PSBs don’t step up recovery, it could further put pressure on their capital, which government is augmenting (R70,000 crore in four years through FY19) in phases. According to rating agency Fitch, Indian banks would need $90 billion in capital to meet Basel III capital adequacy norms by March 2019.

With the highways and steel sectors showing signs of revival, Arun Jaitley said a lot of the provisioning itself would get deprovisioned, and the accounts itself would get upgraded, reducing additional capital requirements for banks.

Responding to a question on a likely rate cut by the RBI on the back of weak industrial output data and a fall in retail inflation, Jaitley said: “I expect when the policy review takes place next month, then RBI and hopefully if the monetary policy committee is constituted by then, they will collectively keep all these factors in mind.”

In its latest monetary policy review, the RBI maintained status quo on key rates citing upside risks to 5% inflation target for March 2017. In the meanwhile, retail inflation eased to a five-month low of 5.05% in August while factory output contracted 2.4% in July, raising hopes for a rate cut by RBI in its next policy review on October 4 to boost growth.

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