Jaitley promises full support for banks on bad loan resolution
FIRM BACKING Govt to make effort to find resources: FM
MUMBAI: Finance minister Arun Jaitley on Friday pledged the government’s full support for efforts to clean up bad loans choking India’s banking system.
Improving the capacity of the banking system and reviving private sector investment to support economic growth are the two big challenges confronting India, Jaitley said at the annual general meeting of the Indian Banks’ Association.
Implementation of the Insolvency and Bankruptcy Code (IBC) and steps taken by the Reserve Bank of India (RBI) should enable timely resolution of stressed loans in the banking system, he said. The government will, on its part, make efforts to find resources that will support banks.
Stressed assets, including loans that have turned bad and restructured loans, have risen to around ₹10 lakh crore, limiting the ability of banks to advance fresh loans.
Lack of demand for corporate credit, meanwhile, has led to loan growth declining to multiyear lows of around 5%, accord- ing to analysts.
Fitch Ratings said in a report on September 12 that the government will have to pump additional capital into public sector banks to aid bad loan resolution and revive loan growth. According to the rating agency, Indian banks need additional capital of $65 billion to meet Basel III norms, which will be fully implemented from the end of March 2019.
The government has budgeted $3 billion in fresh equity for 21 state-run banks over this fiscal and the next. Jaitley had said this week the government will take action to revive sagging economic growth.
Economic growth slowed to 5.7% in the June quarter, the slowest pace in three years, from 6.1% in the previous quarter.
The residual impact of demonetisation last year and the July 1 implementation of the goods and services tax (GST), which was preceded by disruptions in supply and production processes, were seen as contributing factors.