Amid concerns over rising non-performing assets (NPAs) of certain banks, finance minister Arun Jaitley on Friday assured that the government will take more steps to empower public sector banks (PSBs) to recover the bad loans.
“The bankruptcy law is under active consideration. The government is also considering some further steps to empower the banks to be in a position to recover these monies,” Jaitley said. In December, the government had introduced the Insolvency and Bankruptcy Code in Parliament, which when enacted could allow faster unlocking of stressed corporate assets and boost creditors’ ability to recover debts.
Pointing out that there were some over-reactions to reports with regard to the state of the PSBs, he said the volume and extent of the problem should not be exaggerated, so as to lead to any panic.
A similar view was expressed by RBI governor Raghuram Rajan on Thursday as he said that claims made by financial analysts about the size of the stressed asset problem verged on scare-mongering. “Our projections are that any breach of minimum core capital requirements by a small minority of public sector banks, in the absence of any recapitalisation, will be small,” he had said.
Reaffirming the government’s support to PSBs, Jaitley said it was fully committed to provide adequate capital to PSBs, which have been playing a very important role in supporting the Indian economy.
He said the ongoing turmoil in the global markets could be attributed to the uncertainty about the US Fed interest rate hikes, debt problem in Europe and the slowdown anticipated in China. Drawing attention to India likely to grow at about 7.5% in the current fiscal despite global headwinds, he said the government was formulating policies to provide support to various sectors such as agriculture to boost demand.
On Thursday, the benchmark Sensex crashed 807 points to drop below 23,000-mark, its lowest level in 21-months, as concerns rose over global economy and mounting bad loans in Indian banking sector (the index recovered 34 points on Friday to close at 22,986. On Thursday, rupee had closed at a fresh 29-month low of 68.30 against the US dollar while it gained seven paise to close at 68.23. The market value of listed banks has eroded by R1.8 lakh crore in just about 40 days as investors turned bearish on banking stocks.
As on September 30, 2015, the gross NPAs of PSBs have increased to about R3 lakh crore as against R2.67 lakh crore in end-March. However, some analysts say the size of the NPAs could be bigger than reported.