The finance ministry has urged public sector banks in the country to take swift action against the big problem of non-performing assets (NPA). The issue of bad loans and NPAs were discussed as a part of the deliberation at the PSB Manthan in Gurugram. The issue came into focus because the NPAs of India’s public sector banks crossed Rs.7 lakh crore in the quarter ended June 2017.
One of the major areas of discussion at PSB Manthan was to focus on effective strategies to recover capital from stressed assets. Banks were also advised to look into settlement as an option when dealing with bad loans and NPAs. The increase in NPAs over the last two years has been alarming. In March 2015, NPAs of public sector banks stood at Rs.2.78 lakh crore.
Though many banks follow a conservative credit policy, bad loans and NPAs have kept increasing in the recent years. Big companies and corporates are the main contributors for this. Agricultural sector has also contributed to the increase in bad loans in the recent times.
The Reserve Bank of India (RBI) and the finance ministry are looking into ways to bring down the NPAs in public sector banks. Recently, RBI asked banks to refer 12 big cases of bad loans in order to initiate insolvency proceedings. The accounts listed under these 12 cases were responsible for about 25% of the total bad loans.
Recovery proceedings are currently underway for these accounts. According to India’s finance minister Arun Jaitley, more cases will be taken up for bad loan recovery once proceedings have been initiated for these 12 accounts.
To help struggling banks, the government has recently announced a capital infusion of Rs.2.11 lakh crore. This recapitalisation will help banks with credit growth and generate more income. At PSB Manthan, India’s banking secretary Rajiv Kumar revealed that banks are not going to get any easy money under this recapitalisation plan. Banks have to push for banking reforms in order to get the capital from the government.