FM, RBI Governor concerned over NPAs
Finance Minister Arun Jaitley called a meeting with RBI Governor Urjit Patel and top Finance Ministry officials to find a resolution to the problem of non-performing assets. The Department of Financial Services proposed to introduce more efficient tools to manage resolution of NPAs and stressed assets. However the RBI made it clear that more time cannot be given to big-ticket loan defaulters.
An asset is tagged as a non-performing asset when it stops generating income for the lender. It is defined as a credit facility in respect of which the interest and/or installment of principal has remained overdue for a specified period of time. NPAs adversely affect the economy as the funds are locked up in bad projects instead of good ones.
Credit rating agency India Ratings said that government-owned Indian bank's gross non-performing assets (GNPAs) could rise to around six per cent of the total. India Ratings said that though the NPA growth had decreased in 2014-15 but stress in some large corporate accounts could push the gross NPA ratio higher. Gross NPAs had gone upto 5.2% in March 2015 from 4.7% in March 2014.
The gross NPAs of 19 banks touched a high of Rs. 2.6 lakh crore in September 2015. It was Rs. 2.3 lakh crore in March 2015.
Speaking at the SBI Banking Conclave, RBI Governor Raghuram Rajan said that fresh loans should be provided to stalled projects so that they can get back on track. He said that it was the best way to get rid of non-performing assets (NPAs). However, SBI chairman Arundhati Bhattacharya rejected the proposal saying the banks do not have any incentive for doing so.
Following a meeting with chiefs of state-run banks, Finance Minister Arun Jaitley said that the Non-Performing Assets (NPAs) of Indian banks continued to remain at unacceptable levels. He said that this has happened partly due to stress in certain sectors of the economy to which banks had large exposure. He also said that NPAs of few banks were partly due to wilful defaulters.
Finance minister Arun Jaitley said that stress in the power sector of the country was one of the reasons for growing NPAs. He also said that disputes in the roads sectors had stressed the banks. He mentioned that problems related to banks would be separately addressed by the Revenue department. He hoped that steel sector would soon help reduce the stress on banks.
Until the problem of Non-Performing Assets (NPAs) is solved by the public sector banks, the consolidation of banks is likely to be kept on hold. Former Minister of State for Finance, Jayant Sinha, in May'16 said that the Indian Government was considering having 8-10 PSU banks against 27. The Government is looking for various options and experiments in order to solve this issue.