NEW DELHI: The Reserve Bank of India and the government may soon initiate a joint action plan to resolve stressed assets in the banking sector that involves pushing state-run firms to take over some failing assets and allowing banks to take necessary haircuts through overseeing committees (OCs).
This comes after the cabinet on Wednesday cleared a package of measures aimed at sorting out the bad debt problem. This includes the issuance of an ordinance to empower the Reserve Bank to more effectively deal with bad assets by amending provisions of the Banking Regulation Act. The ordinance is expected to get presidential assent by Friday.
“This (the joint action plan) primarily would give protection to banks, bankers and the regulator on a host of actions that otherwise would have come up for unnecessary scrutiny by vigilance agencies,” said a senior government official, adding each action would be case specific. “The OC will vet all such proposals whether it is about haircut or restructuring.”
Finance secretary Ashok Lavasa said separately that amendments to the Banking Regulation Act would help in effectively resolving bad loans.
“It is not possible for me to put down a number on how this (nonperforming assets or NPAs) will go down but certainly we feel that these changes will make the system more effective in handling the bad loans,” he said, adding the situation has not worsened in the recent past and there has been a marked improvement in some of the infrastructure sectors like power and roads.
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.
Last week, the Prime Minister’s Office took stock of the bad-loan scenario. A cell may be set up in the cabinet secretariat to take on sectorspecific assets involving the respective administrative ministries. “We are looking at various mechanisms.
Banks were asked to identify the top 50 stressed assets. Based on their reports, a list has been prepared, where various options will be looked at,” said a senior government official aware of developments.
“Banks are already looking at restructuring options through various modes including S4A mechanism. If that fails, then takeover of some assets by PSUs (public sector units) can also be looked at.”
S4A refers to the scheme for sustainable structuring of stressed assets. Under this, RBI allowed banks to split debt into sustainable and unsustainable parts and take action accordingly. This was among the various programmes introduced by the RBI to resolve bad loans, seen as a key risk to the economy.
Their lack of success in resolving the matter led the government to introduce the latest package of measures. Another cabinet secretariat cell may be established to ensure coordination among various administrative ministries and state-run enterprises.
“So, if there is a steel plant which is available, then SAIL (state-owned Steel Authority of India Ltd) can take over that plant, provided they find value in such an asset,” said another official aware of the development.
Lavasa also noted that there was enough appetite in the market to buy stressed assets.
“We should not judge the capacity that is there in the market because people do have appetite for investment in the Indian market. India is probably one of the best destinations for investment at this point of time,” he said.