The government will work closely with the Reserve Bank of India (RBI) to address issues related to resolution of bad loans as part of the asset quality review (AQR) and in keeping with RBI’s intent to clean up banks’ balance sheets by FY17, Jayant Sinha, minister of state for finance, said on Friday.
Speaking to reporters at the second edition of Gyan Sangam, an annual retreat of bankers here, Sinha said as far as the review of stressed assets is concerned, it is a continuous process that could last at least till March 2017 for both recognition and classification. “The other side of it is resolution. So how do you recognise and classify and provision and then the resolution is another part of it,” Sinha said.
He said the finance ministry and the RBI have already strengthened the mechanism through which banks can resolve assets even on an interim basis. “Even the bankruptcy code is in the Parliament; the CRILC, JLF, CDR, SDR, 5/25 are all the different mechanisms that we have created and strengthened so that the resolution process can move forward efficiently,” Sinha explained.
Sinha said that the AQR conducted through August to December last year was an attempt to quantify stressed assets in the system. He said around Rs 8 lakh crore or 11.25% of bank credit is stressed — bad loans and recast debt. While the first phase of transformation of banks was to allow them work independently without political interference, the second phase was AQR.
“Obviously this (AQR) was done in very close collaboration with us in the ministry of finance,” he said, adding that the AQR has enabled the government to get a system-wide view of the size of stressed assets in the economy, both in the public and private sector banks. “We needed certain amount of capital that was required for the PSBs to ensure that they remain well north of all requirements that RBI has and Basel III has for capitalisation,” he said.
While the government has allocated Rs 25,000 crore capital infusion in PSBs in FY17, Sinha said that the government will provide more if necessary. To decide which bank needs how much capital, the government will take a three-pronged approach, he said.
The first will be to ensure that all banks are able to meet their capital adequacy requirements; secondly, the government will look at the performance of the bank through a set of key performance indicators and evaluate them accordingly; and third is to hold discussions with banks around credit growth and in which sector they would like to grow their credit book.