Finance minister Arun Jaitley on Monday said bankers would soon propose a mechanism to reach “commercially prudent” loan settlements to resolve a surge in bad loans, which slowed the public sector banks’ loan growth to a mere 4% and made them suffer a net loss of Rs 18,000 crore in FY16.

“The discussion are with regard to empowering banks legally, which is something we are doing; protecting bonafide decisions which are taken on commercial considerations and finding resolution-oriented steps,” Jaitley said referring to the plan to deal with NPAs after meeting chief of public sector banks (PSBs) in New Delhi to review their performance.

Jaitley indicated that an independent panel could be set up with the mandate to help the banks resolve the issues of NPAs. As directed by the minister, the Indian Banks’ Association met later on Monday to discuss a mechanism to handle such settlements.

The independent panel would help PSBs negotiate settlements with big businesses on NPAs to shield bankers from any backlash in future. Such a mechanism was also flagged by Vinod Rai, who heads the Banks Board Bureau created this year.

A proposal to set up a stressed asset fund is also on the table to strengthen the recovery and resolution process of banks. “We are considering a stressed asset fund. That is something banks are also working on,” minister of state for finance Jayant Sinha said on Monday.

The fund is being created in view of the need for large chunks of equity capital to infuse new life into banks. Sinha had earlier said that a variety of other funds including the proposed National Infrastructure Investment Fund (NIIF) could help bolster the stressed assets fund.

Jaitely iterated that if needed the government was ready to provide more capital to the PSBs over and above Rs 25,000 crore budgeted for the current fiscal. He also indicated that the government would shortly approve of State Bank of India’s proposal to merge five of its associate and Bharatiya Mahila Bank with itself.

Though in favour of further consolidation among

PSBs, he said there is no new proposal before the government for now.

The stressed loans (gross NPAs and restructured loans) of PSBs stood at R7.33 lakh crore or 14.34% at the end of March 2016 after the Reserve Bank of India started the process of asset quality review (AQR) to ensure banks clean up their balance sheets.

This has taken a toll on the PSBs’, which posted a net loss of R17,991 crore in FY16, against a net profit of R30,869 crore in the previous year.

As a consequence, the loan growth of the PSBs, which account for 70% of loan assets in the domestic banking industry, fell to 4% in FY16 from 7% in the previous year.

The PSBs clocked operational profit in excess of Rs 1.40 lakh crore in the last fiscal year. However, operating expenses were higher than operating profit mainly on account of higher provisioning for bad loans.