Bad loans mess: Government hopes PSBs will be able to reduce NPAs by Rs 3 lakh crore in current fiscal year

The Narendra Modi-led government believes that public sector banks (PSBs) will be able to reduce non-performing assets (NPAs), or bad loans, by as much as Rs 3 lakh crore in the ongoing fiscal year, according to a media report.

The Centre is hopeful that state-run banks will be able to reduce bad loans mostly via debt resolution under the Insolvency and Bankruptcy Code (IBC).

According to a report in The Economic Times, the government is not planning to infuse any capital as it believes that the state-run lenders will improve their performance and will raise resources through the sale of non-core assets.

“As more capital is freed up due to [a] reduction of NPAs, banks will be able to lend further. All large cases of NPAs have already been taken into account in this quarter, so we don’t expect a surprise in the coming quarters,” an unnamed official was quoted as saying by the newspaper.

 Bad loans mess: Government hopes PSBs will be able to reduce NPAs by Rs 3 lakh crore in current fiscal year

Representational image. Reuters.

One of the reasons why the Centre, it seems, is not panicked by state-run banks' NPA situation is because over 2,100 companies have reportedly paid outstanding dues worth Rs 83,000 crore, a majority of which were paid after the government amended the IBC in 2016. The Insolvency Law Committee had suggested that those who contributed to the default of a company, or are otherwise undesirable, should not be eligible to bid for stressed assets.

This triggered a fear among promoters of losing control of their firms, and of being banned from bidding for other distressed assets, prompting them to pay the dues.

21 public sector banks (PSBs) have incurred losses totalling Rs 25,775 crore owing to banking frauds in financial year 2017-18, a Right to Information (RTI) response revealed recently.

Finance Minister Piyush Goyal, on 17 May, promised all possible help to strengthen the 11 public sector banks placed under the 'Prompt Corrective Action (PCA)' framework by the Reserve Bank of India (RBI), done to check their deteriorating financial health.

"Over the next few days we will ensure that the central government gives every possible support to further strengthen the resolve of these banks to come out of PCA framework as quickly as is possible," Goyal told reporters.

According to an IndiaSpend report, PSBs' bad loans soared 1.5 times, from Rs 2.67 lakh crore ($39.99 billion) on 31 March, 2015, to Rs 6.89 lakh crore ($103.21 billion), on 30 June, 2017. Of the 21 public sector banks, 11 had non-performing assets (NPAs) greater than 15 percent of total assets.

With inputs from PTI

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Updated Date: May 30, 2018 19:58:12 IST