Jaitley to hold talks with RBI officials on NPAs

In an effort to address the problem of rising non-performing assets of banks, Union Finance Minister Arun Jaitley is likely to hold a high-level meeting with senior officials of Reserve Bank of India on Friday.

Banking Secretary Anjuly Chib Duggal along with senior Finance Ministry officials will also be present at the meeting. 

Advertisement

Reserve Bank Deputy Governor Viral Acharya had floated the twin concept of Private Asset Management Company (PAMC) and National Asset Management Company (NAMC) for resolution of stressed assets. In his first public speech after assuming office, Acharya had suggested on 28 February fresh structures through which the non-performing assets faced by Indian banks could be resolved and called for the need for greater reforms in the sector. 

Gross non-performing assets across 42 listed banks in India have increased to Rs 7 lakh crore by the end of December 2016, nearly double the amount reported at the end of the September 2015 quarter.  A proposal to push private asset reconstruction companies (ARCs) to take on the toxic assets of public sector banks is gaining traction within the government as the most practical way to resolve the banking sector mess, which is seen as hampering the Indian financial sector’s ability to fund productive sections of the economy.

Chief Economic Advisor Arvind Subramanian had suggested setting up a public sector asset rehabilitation agency (PARA), proposed in the Economic Survey of 2016-17.  It was being looked at as an in-principle instrument for resolution of the twin balance sheet problem of “over-leveraged companies and bad-loan-encumbered banks”. However, it has so far not found any backing either from the finance ministry or from the central bank. 

Acharya acknowledged that there has been little resolution of stressed assets. This is despite the fact that the RBI has put in place a number of mechanisms through which bad loans can be resolved. The PAMC plan, as suggested by Acharya, could be for sectors such as metals, construction, telecom and textiles, where the assets will have economic value in the short run.

Different measures tried out by policy makers have failed to adequately stem the rot in the country's banking sector. In 2014, the RBI had come up with a scheme that permitted banks to extend the maturity of loans given to companies in the infrastructure sector. In 2015, it extended banks the option of converting a part of the debt into equity and taking a controlling stake in over-leveraged companies. In June last year, the central bank floated yet another instrument called the Scheme for Sustainable Structuring of Stressed Assets (S4A plan), which allowed lenders to split the outstanding debt of a stressed company into sustainable debt and equity with some riders. The Bankruptcy Code is not expected to yield results in the next couple of years.