Survey has a bad bank idea, Govt may consider it: FM

FINANCE MINISTER Arun Jaitley Friday said that setting up a “bad bank” could be one of the possible solutions to tackle the twin balance sheet problem of overindebted corporates and banks laden with non-performing assets. The government, Jaitley said in a post-budget interaction with industry chambers, will consider a suggestion in this year’s Economic Survey to set up a Public Sector Asset Rehabilitation Agency (PARA) to deal with bad debts. He said the government will provide banks more money if needed over and above Rs 10,000 crore provided in the Budget for 2017-18, which is in line with the Indradhanush roadmap for improving the health of public sector banks.

“The Economic Survey always carries... ideas for discussion and may be eventual implementation even if you can’t do it immediately. To that extent, we take this suggestion (of PARA) on board. Even otherwise, this suggestion, which has been mooted, of the bad bank even earlier, now we take this suggestion on board for consideration. But eventually what emerges out as the solution, I won’t be able to comment at this stage,” Jaitley said in an interaction with chambers such as CII, FICCI and Assocham.

He said the government does not want that the Budget should alone be funding the resolution of bad debts. “We don’t want to get into a situation where the whole business of asset reconstruction for which we have just had a large (number of policy measures)... we don’t want a situation to eventually converge that it becomes a government issue and then whole thing has to be supported only out of the Budget and not otherwise. Let the sectoral activity expand, we will take that suggestion (of bad bank) on board, it’s also a possible solution,” he said.

Despite a series of measures taken by the government, NPAS of banks have been rising. Public sector banks’ gross NPA ratio rose to 11.82 per cent in September 2016 (or Rs 5.89 lakh crore) from 9.83 per cent in the previous year. Total stressed assets of the state-owned banks were 15.88 per cent in September 2016.

The concept of a “bad bank” involves the takeover of assets from public sector lenders, thereby forcing them to focus on their normal commercial activities. The concept was pioneered at the Pittsburgh-headquartered Mellon Bank in 1988 in response to problems in the bank’s commercial real-estate portfolio. According to Mckinsey & Co, the concept of a “bad bank” was applied in previous banking crises in Sweden, France and Germany.

The Economic Survey, tabled in Parliament Tuesday, suggested PARA could take charge of the largest, most difficult cases, and make politically tough decisions to reduce debt. The survey noted that “decisive resolution is urgently needed before the TBS (twin balance sheet) problem becomes a serious drag on growth”.

Jaitley said the Budget tried to balance fiscal consolidation with the need for stepping up public investment. “In this Budget, I have maintained the path of fiscal consolidation without compromising on expenditure. No tax refunds have been held, but I have not cut any expenditure at the same time,” he said, adding that the revised estimates of expenditure have come in higher than the Budget estimates for last two years. The Budget has pegged fiscal deficit for 2017-18 at 3.2 per cent of Gross Domestic Product, a shade over the earlier plan of reducing it to 3 per cent.

The government is on track to implement the Goods and Services Tax and list stateowned general insurers on the stock exchanges, he said. On GST implementation, Jaitley said: “Now, the main policy issue over nine meetings have been put to rest. Final drafts are now being prepared and once they are circulated with the legally vetted language, those drafts will have to then go to Parliament and the state legislature for approval. We will meet on the 18th of this month hopefully. My target currently is to finalise those drafts and take it in the second part of the Budget session in Parliament. One parallel exercise is fitment of various commodities into the rate structure. For that, the officers have to meet,” Jaitley said.

As regards the GST rates for various goods and services, Revenue Secretary Hasmukh Adhia said the new rates will mostly be in line with existing rates. “As far as fitment of rate is concerned, there are four slabs. The present incidence of VAT plus excise duty, or VAT plus service tax, whatever is the incidence, the slab closer to that is the (GST) slab where it will fall. There will be few items of exception which will go to the GST Council for discussion. We hope to complete the process of final rules and laws by 31st of March, rates can be decided even in the month of May or June,” Adhia said.

To a query on granting infrastructure status to the tourism sector, as was done for affordable housing in the Budget 2017-18, Jaitley said the government will take into account this suggestion.

CII president Naushad Forbes said during the meeting that imposing a surcharge of 10 per cent on the rich was not in the spirit of rewarding the honest tax payers.

“There is one item in the budget, which our members couldn’t agree with and that is the introduction of 10% surcharge on the incomes between Rs 50 lakh and Rs 1 crore. This is not in the spirit of rewarding the honest tax payer,” he said.