New Delhi, March 15, 2017

FM said to be against the concept of 'bad banks'

Finance Minister Arun Jaitley said on Wednesday that the government will consider setting up multiple oversight committees under the Reserve Bank of India (RBI) to examine the cases of non-performing assets (NPAs) referred by banks. According to an official release by the finance ministry, Jaitley also said several alternatives were being discussed on the issue of setting up state-backed bad banks.

These remarks were made by the finance minister at the meeting of the consultative committee on Finance on Wednesday morning. The committee discussed various ways to deal with the Rs 9.5 lakh crore worth of toxic assets in the banking system.

However, senior government officials, who were part of the meeting later, said that Jaitley was against the concept of using taxpayers’ money to deal with corporate defaults. “The finance minister is of the opinion that bad banks are not a good idea,” said an official.

“It was also discussed that we want to amend Prevention of Corruption Act as soon as possible to give confidence to bankers and government officials that their commercially viable decisions will not be scrutinised by probing agencies,” the person said.

“The RBI has made an Oversight Committee to look into the process of cases referred to it by the different banks. Seeing the response and its performance, the finance minister said that the government is considering a multiplication of such committees,” the finance ministry statement said.

Jaitley said the rate of rise in banks’ NPAs has slowed down in the March quarter and the steel sector has started showing signs of improvement. The core problem of NPAs is with very large corporates, though few in numbers, which are predominantly in the steel, power, infrastructure and textile sectors, Jaitley said at the meeting. He said some corporates have expanded their capacity during the boom period from 2003-2008, but could not face the onslaught of global financial crisis and consequent slowdown thereafter.

“The government is taking sectoral specific measures to deal with the problem of NPAs, specifically in the resolution of large debts... The steel sector is on the path of recovery, while many decisions have been taken in the infrastructure, power and textile sectors to resolve their problems,” Jaitley said.

The members of the consultative committee, too, gave various suggestions in order to deal with bad assets. Some parliamentarians suggested that apart from recovery proceedings, criminal action must be taken against the big wilful defaulters and their photographs may also be published, according to the statement.

“A member also suggested that under the Sarfaesi Act, the focus should be on catching big wilful defaulters,” the statement added. One member suggested that state governments may be allowed to take part in the auction of stressed assets.

Some members also said that since asset reconstruction companies (ARCs) are in the private sector and their performance is not up-to-the-mark in many cases, therefore, close monitoring of their operations be done through stringent regulations, especially in the wake of decision to allow 100 per cent foreign direct investment in the ARCs through automatic route. Some members also spoke in favour of setting up bad banks.

The members of the consultative committee, all parliamentarians, who participated in the meeting included Baijayanta Panda, Kailkesh Narayan Singh Deo, Udit Raj, Anil Desai, N Gokularishnan, Rajeev Chandrasekhar, Rajkumar Doot and Sukendu Sekhar Roy.

Finance Secretary Ashok Lavasa, Economic Affairs Secretary Shaktikanta Das, Revenue Secretary Hasmukh Adhia, Financial Services Secretary Anjuly Chib Duggal, Dipam Secretary Neeraj Gupta and Chief Economic Advisor Arvind Subramanian also attended the meeting.

[The Business Standard]