More power to banks to deal with bad loans mooted, says Jaitley

New Delhi: Finance Minister Arun Jaitley on Monday hinted that some measures are likely to further empower state-run banks legally in dealing with the rising bad loans.   "Various suggestions have come up for empowering the banks, functioning in an environment, so that they can deal with the situation (bad loans). The government is fully committed to support the banks in this regard," Jaitley said at a press conference after the quarterly performance review meeting with the heads of public sector banks here.   His remarks come a day ahead of the Reserve Bank of India's second bi-monthly monetary policy review on Tuesday and its Governor Raghuram Rajan recently being in a spate of controversies over failure to boost lending and credit growth.   "One of the key subjects obviously is the credit loan and expansion of banking activity. We must support the banks fully so that their ability to support growth remains," Jaitley said at the conference.   "The focus of banks on NPAs (non-performing assets) must remain, but financial inclusion schemes must continue. We are supporting banks so that they can support lending and credit growth," he added.   Jaitley said the banks have put forward suggestions to tackle the stress NPAs are creating. One key consideration is that the banks should be empowered and consequently protected so that they can bring about commercially prudent settlements, he said.   "I wouldn't want to be specific at this stage. I have indicated that the discussions are with regard to empowerment of banks, protection of the banks and creating solutions," he said.   Jaitley said that the meeting took up various topics like NPAs, or bad loans, position, inter-operability of financial inclusion schemes, credit flow and banks' expansion.   Referring to the rising losses in the quarterly results of public sector banks, he said it is on account of the high provisioning that the PSBs declared a net loss of about Rs 18,000 crore.   "The government also firmly believes that the NPA situation has risen on account of certain sectoral stresses," he said.   Ten state-run banks suffered losses of over Rs 15,000 crore in the fourth quarter ending in March, due to provisioning to cover for bad debt. Punjab National Bank, for instance, made an operational profit last year of Rs 12,000 crore, but has now declared record loss because of such provisioning.   However, the overall operational profit of public sector banks is significant, the minister said adding this actually amounted to Rs 1.40 lakh crore in 2015-16.   He also hoped that the bankruptcy code and debt recovery legislation will significantly help the banks deal with stressed assets.   The government has allocated Rs 25,000 crore in 2016-17 for revamp of public sector banks and Jaitley said they "stand by that commitment".   Gross NPAs of PSBs rose from Rs 267,065 lakh crore in March 2015 to Rs 361,731 lakh crore in December. As a proportion, they increased from 5.43 per cent of advances in March 2015, to 7.3 per cent as on December-end.