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NPAs crisis: Narendra Modi government sets up panel to tackle Rs 9.64 lakh cr bad loans menace

The government is learnt to have set up a panel under Cabinet secretary PK Sinha to review the resolution plan for the vexed bad loan crisis, including the feasibility of a one-time settlement of stressed accounts.

Finance minister Arun Jaitley had earlier said 30-40 companies accounted for a major chunk of total NPAs with banks. (Reuters)

The government is learnt to have set up a panel under Cabinet secretary PK Sinha to review the resolution plan for the vexed bad loan crisis, including the feasibility of a one-time settlement of stressed accounts. The panel is expected to suggest rules for taking haircuts in some stressed accounts apart from exploring the possibility of more loan recasts in stressed sectors like steel and textiles, a senior government official said.

The department of financial services of the finance ministry is in close co-ordination with the Cabinet secretariat and the Prime Minister’s Office on the issue, he said. It’s also in constant touch with the Reserve Bank Of India to resolve the issue, he added.

Finance minister Arun Jaitley had earlier said 30-40 companies accounted for a major chunk of total non-performing assets (NPAs) with banks. As of December 2016, commercial banks had stressed assets (gross non-performing assets and restructured standard advances) worth `9.64 lakh crore, with most in public-sector banks.

The latest move comes amid mounting speculations that the government could also amend the Banking Regulations Act to arm the central bank with more special powers to deal with the NPA issue. However, another senior official said the government hasn’t yet made up its mind if any such amendment is really necessary should it wish to see the RBI playing a greater-than-the usual role in terms of giving directions to banks on any issue relating to the NPAs. “Under Section 35-A of the Banking Regulations Act, the RBI already has all the general power it needs to give any sort of directions to banks. So, at this point, we think it (amendment of the Act) isn’t necessary,” he added.

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Section 35-A of the Banking Regulations Act deals with the power of RBI to give directions to banks. It says: “Where the Reserve Bank is satisfied that, in the public interest or in the interest of banking policy; or to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company; or to secure the proper management of any banking company generally, it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions.”

The section also makes it clear that RBI may, on representation made to it or on its own motion, modify or cancel any direction to banks and may impose such conditions on them as it thinks fit.

Last month, Jaitley held a key meeting with RBI governor Urjit Patel, financial services secretary Anjuly Chib Duggal and other top officials on the NPA issue. Already, some of the options to tackle the bad loan crisis have been articulated by chief economic advisor Arvind Subramanian (such as floating a public-sector asset reconstruction company or bad bank) or RBI deputy governor Viral Acharya (setting up of a private asset management company and a national asset management company). However, for the most viable of these options to take shape, the government has to first decide the extent of haircut that banks will have to take, which is going to be a politically-sensitive decision.

NPAs reached 9% of total advances by September 2016, double their level a year earlier. Importantly, more than four-fifths of the NPAs were in the public sector banks, where the NPA ratio had touched almost 12%. A sample of 39 top banks showed NPAs accounted for Rs 6,97,409 crore — or 9.3% of their advances — as of December 2016.

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