Amid outrage over Vijay Mallya's massive default on loans, Finance Minister Arun Jaitley and RBI Governor Raghuram Rajan today cautioned against overstating the bad loans crisis in the banking system lest it hampers the entire lending operations and growth.
Amid outrage over Vijay Mallya’s massive default on loans, Finance Minister Arun Jaitley and RBI Governor Raghuram Rajan today cautioned against overstating the bad loans crisis in the banking system lest it hampers the entire lending operations and growth.
However, Jaitley said individual misdemeanors will be “looked into differently”.
Both were speaking to the media after Reserve Bank’s Board Meeting here attended by the Finance Minister as a post Budget tradition in which they discussed the need to clean up the banks balance sheets.
“We don’t want to create a situation where we overstate the crisis and in the process, the whole activity of lending for growth itself starts suffering because people become extraordinarily defensive. We don’t want to reach that situation.
“So its that limited category where there is some kind of a prima facie misconduct or misdemeanor, which has taken place by the individual. Its those areas which will be looked into differently,” Jaitley said.
Echoing similar views, Rajan said “we have to be careful as we go forward” that one hand criminal actions are penalised.
“But at the same time we don’t indulge in a broad fishing expedition which then becomes a reason for banks to get worried about making loans which then hamper the recovery as well as hamper the absolutely important investment in infrastructure that have to take place.
“So as a country, as a system, we have to draw that balance very carefully and we are hopeful that we can manage that,” he said.
The gross Non Performing Assets (NPAs) of the public sector banks (PSBs) increased from 5.43 per cent as on March 2015 to 7.30 per cent as on December 2015. Gross NPAs of PSBs increased from Rs 2,67,065 lakh crore in March to Rs 3,61,731 lakh crore in December. Jaitley expressed hope that the NPA situation, which has been created on account of an overall economic environment and slowdown in certain sectors, would see improvement.
“As the revival of those sectors takes place, you will certainly find cleaning up of balance sheets, which also takes place because over the next few quarters they would probably have a possibility of reviving,” he said.
Rajan said there is a well-defined process for defining wilful defaulters.
“Broadly speaking, it may be maneuvers, which strictly speaking are not illegal, but which divert funds away from the project and elsewhere. Now some of these actions may also be illegal.
“We have a process by which people are declared wilful defaulters, we maintain a registry of wilful defaulters and we have strengthened the penalties, if you are a wilful defaulter on your ability to raise money from the system. So I think that process is there,” the Governor said.
He further said that one of the problem in past has been difficulty of enacting the full process given the necessity for following certain aspects that judiciary focused on.
Going forward, Rajan exuded confidence that the process is streamlined so that entities following aberrant practices end up not paying loans and subsequently “we get a better system. So my hope is that some of the attention that has been paid to some of these actions will help streamline the system.”
The provisioning for NPAs done by PSBs as on December 2015 stand at Rs 1,35,938 crore.
State-owned banks wrote off over Rs 1.14 lakh crore debt during the last three financial years that was more than the amount written off in the previous nine fiscals.