Focus on measures to recover bad loans, finmin tells banks
MUMBAI: The finance ministry is in discussions with the senior management of public sector banks to explore ways of addressing the piling stock of bad loans, particularly in the stressed sectors of infrastructure, steel and power.
Finance ministry Arun Jaitley, along with other ministry officials, met CEOs and executive directors of various public sector banks on Monday to help address the rising menace of bad loans.
The finance ministry has asked banks to focus on the measures required to resolve or reduce stress in the banking system, indicating that the government is not convinced about the effect of current measures, including RBI’s SDR and S4A debt restructuring exercises, which have seen mixed results so far, sources said.
Banks’ exposure to industries totalled ₹26.18 lakh crore in August 2016, a 0.2% fall over last year. Just five sectors contribute 61% of the banking sector’s stressed assets — infrastructure, steel, textiles, power, and telecom, RBI governor Urjit Patel had pointed out at the monetary policy conference earlier this month.
RBI data for August suggests that loans to infrastructure (power, telecom, roads and other projects) fell 4.2%, compared to the earlier growth of 8%; loans to textile industry reduced by 1.1%; iron and steel sector saw a loan growth of 8.4%.
Power, metals, roads and textiles account for 50% of banks’ gross credit deployed in industries, according to a report by ratings firm ICRA. As of June 30, 2016, total stress assets (gross NPAs plus restructured loans) of banks in the metals sector jumped to 28% of total advances from 6% on March 2015, those in power sector increased to 12% as of June 2016 compared to 8% as of March 2015, while gross NPAs of banks in the textiles sector almost doubled to 17% from 9%, according to the agency.
Earlier this week, finance minister Arun Jaitley said banks should enforce their right and recover dues in the larger interest of the economy.
“The problem of NPAs is of course the next big challenge as far as Indian economy is concerned... we are now coming to a stage when a lot of effective steps both legislative and in terms of policy have been taken,” Jaitley had said.
After failure of measures such as CDR (corporate debt restructuring), SDR (strategic debt restructuring) and 5/25 refinancing, the Reserve Bank of India made changes in the S4A scheme (announced in June this year) to help banks to push resolutions faster.
Gross non-performing assets (NPAs) of public sector banks have risen to ₹5.59 lakh crore in June from ₹5.02 lakh crore in March this year. NPAs are loans that do not yield results.