After clearing ordinance for amendment in Banking Act, the government is contemplating providing operational flexibility to central PSUs to take over troubled projects as part of its strategy to quickly get rid of mounting NPAs. To facilitate the takeover of stalled projects, the Cabinet Secretariat will coordinate between various Central Public Sector Enterprises (CPSEs) under different administrative ministries and banks. The issue of rising non-performing assets (NPAs) was discussed at a meeting called by Prime Minister Narendra Modi last week. Among others, the meeting discussed steps being taken to reduce NPA including mechanism of transfer of bad assets to PSUs for turning them around.
Finance Minister Arun Jaitley along with the Cabinet Secretary P K Sinha, Financial Services Secretary Anjuly Chib Duggal and other senior officers of the ministry participated in a high-level meeting, sources said. Banks have been asked to identify some of the large NPAs in various sectors and share details of this with the sector related ministries. It is expected that the concerned ministries to work out faster resolution mechanisms or takeover by state run firm in some cases, sources said.
Some of these assets has potential to be revived either by some changes or handing over to sector related PSUs for operating it and turning them around, sources said, adding if existing PSUs get good assets at a decent valuation, it is win-win for both state-owned firm and banks. PSU will get new state-of-the-art new plant and machinery at decent valuation rather going in for greenfield expansion of their capacity, sources added.
According to sources, recent consolidation in the banking sector and the way forward also came up for discussion apart from issues related with amendment in Banking Regulation Act empowering Reserve Bank to give direction to banks to effectively deal with NPAs. Toxic loans of public sector banks (PSBs) rose by over Rs 1 lakh crore to Rs 6.06 lakh crore during April-December of 2016-17, the bulk of which came from power, steel, road infrastructure and textile sectors.
Gross NPA pf PSBs nearly doubled to Rs 5.02 lakh crore at the end of March 2016, up from Rs 2.67 lakh crore at the end of March 2015. The proposed amendment approved yesterday in banking laws will empower the Reserve Bank to effectively deal with the problem of mounting bad loans in the banking sector.
Banks have been reluctant to resolve NPAs through settlement schemes or sell bad loans to asset reconstruction companies for fear of being hauled up by investigation agencies. Once the law is amended, RBI will be able to give specific solutions for specific cases and also, if required, look at providing relaxation in terms of current guidelines, said a senior government official aware of the deliberations.