PSU banks may be asked to take over non-performing assets

Industry:    April, 2017

In a fresh approach to tackle bad loans in state-run banks, the government is looking at possible takeover of troubled projects by state-run firms operating in related sectors, two senior officials said. The government has asked all banks to identify top 50 non-performing assets (NPA) in each sector.

This list will then be shared with all concerned ministries to work out faster resolution mechanisms or take over by state-run firm in some cases, a government official said. “Some of these assets can be salvaged through some proactive policy action. We will be asking the concerned administrative ministries to suggest measures and, if possible, then a state-run firm can take over these assets,” the official said.

There is value in some projects which central public sector enterprises (CPSEs) can take over and banks are also willing to take deeper haircut given the project is being handed over to another state-run firm, the official said.

As per the latest government data, public sector banks’ gross bad loans rose by over Rs 1 lakh crore in the first nine months of last fiscal year to Rs 6.07 lakh crore by end-December, from Rs 5.02 lakh crore at the end of March 2016. While they are struggling to deal with bad loans, the banks have managed to slow down its growth rate. Their gross NPAs had stood at Rs 2.67 lakh crore at the end of March 2015.

The central government will also bring state governments on board in case the issue is state specific, said the official quoted earlier. “In some cases, if there are local issues or clearances required at state level, this will be taken up with the respective state government.”

A finance ministry official said the new approach is in sync with the government’s idea to further empower banking sector regulator Reserve Bank of India through an amendment in the Banking Regulation Act. “This will further strengthen the various steps being planned under the new Bankruptcy norms,” the official said.

Earlier this week, finance minister Arun Jaitley said in New York that resolution of NPAs is a big challenge but noted that the problem was essentially about some 20-30 large accounts. “It’s not a problem spread over hundreds of thousands of accounts…And it’s not impossible for a large economy like India to resolve 20 to 30 accounts.

So it’s not an insurmountable problem. I think it’s just persisted too long, but it’s certainly adversely impacting us,” he had said. Jaitley had also said some decisions will be taken to empower bankers to take haircuts without the fear of vigilance agencies.

“The law has to eliminate” the possibility of “commercial decisions being treated as an act of corruption,” he had said.