FM Jaitley says trouble in large corporates the root cause for bad loan mess in banks

New Delhi: Finance Minister Arun Jaitley on Wednesday said that the bad loans of banks remain a challenge, with "very large" corporates at the core of the problem.

"To deal with the Non-Performing Assets (NPAs) or bad loans of the banks is a challenging task even though they have shown declining trend in the last quarter of the current financial year," Jaitley said at the first meeting of the Consultative Committee attached to the Ministry of Finance.

The meeting was addressing the issue of NPAs of banks.

Jaitley said that the core problem of NPAs was with "very large corporates", predominantly in the steel, power, infrastructure and textile sectors.

The Finance Minister added that the steel sector was on its path of recovery, while many decisions have been taken in the infrastructure, power and textile sectors to resolve their problems.

Finance minister Arun Jaitley. PTI

Finance minister Arun Jaitley. PTI

He said that the corporates had expanded their capacity during the boom period (2003-08), but could not cope with the onslaught of global financial crisis and consequent slow-down thereafter.

"The government is taking sectoral specific measures to deal with the problem of NPAs specifically in the resolution of large debts," he added.

The Finance Minister said that the Reserve Bank of India (RBI) had formed an Oversight Committee to look into process of the cases referred to it by the banks.

After seeing the response and its performance, Jaitley said that the government was considering multiplication of such committees.

On the issue of setting up a "bad bank", he said that several possible alternatives were already there and the issue was being debated on public platforms.

At the meeting, some members suggested that the government must go ahead to establish Public Sector Asset Rehabilitation Agency (PARA) and it should only consider those NPAs where sector specific reforms do not work.

The suggestion included that a Special Bank be created where NPAs of all the public sector banks could be transferred.

There was also a need to restore the confidence of the officers of the banks which had been adversely affected due to increasing NPAs, the meeting pointed out.

"Measures be taken to comfort these officials and to enable them to take commercially viable and rational decisions. They suggested creating a Special Performance Vehicle (SPV) committee outside the banking system to guide commercial decisions," the Finance Ministry said in a statement.

Jaitley said that the Insolvency and Bankruptcy Board of India has already been set up under the Insolvency and Bankruptcy Code, 2016.

To deal with the problem of NPAs in the steel sector, a Minimum Import Price (MIP) was introduced in December 2016 on import of specific steel products.

In the road sector, the National Highways Authority of India (NHAI) had approved premium recast of 14-15 distressed projects.

The RBI has made formation of Joint Lenders' Forum (JLF) mandatory when aggregate exposure is more than Rs 100 crore.

Updated Date: Mar 15, 2017 17:45 PM

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