Reserve Bank of India’s action on NPA resolution expected soon, says FM Arun Jaitley

RBI is at a fairly advanced stage of preparing a list of borrowers where NPA resolution is required under the insolvency law and action on this front is expected soon, said Finance Minister Arun Jaitley on Monday with ordinance in place.

The ordinance was promulgated last month amending the Banking Regulation Act, 1949, to empower the Reserve Bank of India to resolve the thorny issue of non-performing assets (NPAs) or bad loans.

The government empowered the RBI to ask banks to initiate insolvency proceedings to recover bad loans and promised more measures to resolve the NPA problem.

“Under the new ordinance issued, the RBI is at a fairly advanced stage of preparing a list of those debtors where a resolution is required through the Insolvency and Bankruptcy Code (IBC) process. You will be shortly hearing about it...  The RBI is actively working on that,” he said after meeting heads of PSU banks here.

“Consolidation of banks was not on the agenda as far as this present meeting is concerned. But I can tell you, we are actively working in that direction,” Jaitley told reporters.

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He left no one in doubt that the Centre will not be part of a state’s fiscal leverage in waiving farm loans and the cost has to be borne by the states.

This assumes significance against the backdrop of farm debt waiver announced by the Maharashtra government yesterday even as farmers in Madhya Pradesh were up in arms demanding relief.

The finance minister pointed out that a few top bankers expressed apprehensions about the infrastructure available for enforcement under the NPA ordinance. He, however, did not go into the specifics.

According to RBI Deputy Governor S S Mundra, who was present, the ordinance on NPAs essentially involves 2-3 components.

“One of the important components was to enhance the size and scope of oversight committee. Also, the identification of the accounts which can be actively taken up under the process.  So, on the second point, an internal advisory committee is constituted by the RBI,” Mundra said.

RBI is discussing it, he said, adding that information has been collected from banks on certain large accounts, for which some additional details are being sought.

“So, there’s active work going on it. I think soon some of the action points will emerge from that,” he said.

Jaitley further said there are already about 81 cases filed under the IBC and 18 cases out of these have been initiated by financial creditors.

“These are already before the National Company Law Tribunal (NCLT) and since a bulk of the NPAs, about 70 per cent, are either in consortium or in multiple banking arrangement, the speedy resolution is required,” he said. “As over the next few months pursuant to the new ordinance, further effective action is taken and we will see issue of resolution move forward.”

On the subdued loan growth, the finance minister made the point that banks are making best efforts through the available infrastructure to give the credit when they are asked for.

“That’s the part of the overall demand in the economy also. It is not related to banks alone,” he clarified.

Credit growth plunged to a six-decade low of 5.08 per cent in 2016-17 against 10.7 per cent a year ago.

Asked if reduction in lending rate was part of the agenda, Jaitley acknowledged that banks have done fairly well in that direction in the last 6-8 months.

On goods and services tax (GST) preparedness of the banks, the finance minister said various issues related to this will be discussed with the revenue secretary later.

Other issues that were discussed at the meeting were financial position of public sector banks and review of all financial inclusion schemes and cyber security.

There was a detailed presentation which showed that the banks made a stable operating profit of Rs 1.5 lakh crore in 2016-17.

“Obviously, this was subject to various provisioning requirements and after the entire provisioning was done, there has been a net profit of Rs 574 crore,” Jaitley said.

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