The Reserve Bank of India (RBI) is at a “fairly advanced stage” of finalising a list of defaults where the insolvency law can be invoked for the resolution of the toxic assets and action in this regard will be visible soon, finance minister Arun Jaitley said on Monday. Last month, through the Banking Regulation (Amendment) Ordinance, 2017, the Centre authorised the RBI to direct banking companies to resolve specific cases of bad loans by initiating resolution process under the Insolvency and Bankruptcy Code (IBC), where required.
Chairing a meeting to review the performance of public-sector banks (PSBs) here, Jaitley said: “You will be shortly hearing about it (list of cases to be resolved through the IBC). The RBI is actively working on that.” The IBC provides for the turnaround of the assets or, in case of liquidation, their expedient monetisation, with secured creditors third in the preference order, after cost of resolution and workers’ dues. The meeting was attended by the chiefs of PSBs and senior officials of the department of financial services, including financial services secretary Anjuly Chib Duggal.
The finance minister said 81 default cases have been filed under IBC for resolution, of which 18 have been initiated by financial creditors, including banks. “These are already before the National Company Law Tribunal (NCLT) and since a bulk of the NPAs, about 70%, are either in consortium or in multiple banking arrangements, the speedy resolution is required,” he said. On the list of defaulters, RBI deputy governor SS Mundra said an internal advisory committee has been constituted by the RBI. Information has been gathered from banks on certain big non-performing asset (NPA) accounts and some additional details are being sought now. “So, there’s active work going on it. I think soon some of the action points will emerge from that,” Mundra said.
NIIF can be roped in to resolve toxic assets in infra
Sources said the meeting also discussed the possibility of tapping the National Investment and Infrastructure Fund (NIIF) to resolve some of the stressed asset cases in the infrastructure sector. “NIIF works in certain specific sectors relating to infrastructure and its mandate is wide enough,” said the source, adding it can take a number of stressed assets if it’s a viable option.
No central aid for farm loan waiver by states
Addressing reporters, Jaitley said states announcing farm loan waiver will have to bear the cost of it and the Centre won’t provide any special package to them for this purpose. Last week, the RBI’s monetary policy committee warned the announcements of large farm loan waivers by states raised the risk of fiscal slippages which, by and large, could entail inflationary spillover.
Earlier this year, the Uttar Pradesh government had announced a loan waiver of Rs 36,359 crore, mainly to meet the BJP’s poll promise. This only raised the demand for similar relief to farmers in other states as well. Recently, Maharashtra announced the waiver of loans of 3.1 million marginal farmers, which will cost around Rs 30,500 crore. Farmers in Madhya Pradesh and Tamil Nadu have also been seeking such a breather. A Bank of America Merrill Lynch report says such waiver could be as much as $40 billion, or 2% of GDP, in the run-up to 2019 general elections.
Working on PSBs’ consolidation
Jaitley said although consolidation of PSBs was not on the agenda for Monday’s meeting, “but I can tell you, we are actively working in that direction”.
Banks pitch in to offer credit when asked for
On the issue of muted loan growth, Jaitley said banks are making best efforts to give the credit when they are asked for. “That’s the part of the overall demand in the economy also. It is not related to banks alone,” he added. Credit growth crashed to a six-decade low of 5.08% in the last fiscal, compared with 10.7% a year before. The finance minister pointed out that a few PSBs have expressed concerns about the infrastructure available for the enforcement under the NPA ordinance. However, he did not elaborate. Other issues that were discussed at the meeting were financial position of public sector banks and review of all financial inclusion schemes and cyber security.
Provisioning takes toll on PSBs’ profitability
PSBs collectively recorded a stable operating profit of Rs 1.5 lakh crore in 2016-17 but net profit stood at just Rs 574 crore in the last fiscal after meeting provisioning requirements, Jaitley said. Still, the performance is still much better than a collective net loss of Rs 17,993 crore the 28 PSBs had posted in 2015-16, minister of state for finance Santosh Gangwar had said in Parliament.
Banks’ GST preparedness reviewed
The government also reviewed the PSBs’ preparedness for rolling out the goods and services tax (GST) regime from July 1. Revenue secretary Hasmukh Adhia met the chiefs of PSBs in this regard.