A day after Reserve Bank of India (RBI) Governor Urjit Patel signalled a shift in the central bank’s stance towards tackling bad loans, Finance Secretary Ashok Lavasa on October 5, backed the new approach, saying state-run banks need to find practical ways out of the stagnation in loan growth.
Patel on October 4, said the central bank will be “firm and pragmatic” in dealing with the problem of stressed assets at India’s banks, weighed down by Rs 6.3 trillion of bad loans.
His remarks signalled a more conciliatory approach towards dealing with stressed assets after aggressively pushing banks for two years to identify such assets and set aside money to cover the risk of default.
In an interview, Lavasa said banks will have to see how to disentangle these assets.
“If they don’t take any decision to resolve these issues, neither the banks, nor the borrowers nor the project will get benefits. On the contrary, the three are suffering. So they will have to find practical ways out of this stagnation. The other pragmatism that is being talked about is that it should not affect their lending to new projects. The new decisions of lending should go on the basis of merit,” he said.
“So when RBI governor talks about a pragmatic approach, he is saying that yes, bad loans is an issue which needs to be resolved but it should not affect new credit offtake,” said Lavasa.
India’s banking system has amassed a massive pile of non-performing loans in the aftermath of an economic slowdown that, coupled with delays in securing statutory approvals and completing land acquisition, stalled many projects, squeezed corporate cash flows and made it difficult for borrowers to repay loans.
RBI’s new approach marks a change in tone from December when then Governor Raghuram Rajan said that banks had till March 2017 to clean up their books fully, practically setting a deadline.
Asked whether the idea of a ‘bad bank’, which Rajan was opposed to, is the way out of the bad loan mess, Lavasa said it could be a possible solution, though he is not sure if it is the best one. Such a bank would take over bad loans from commercial lenders to clean up their books.
“The problem of bad debts is a real problem. So you have to deal with it. You cannot wish it away,” Lavasa said.
He ruled out infusing more capital into banks other than the Rs 22,915 crore offered to 13 public sector lenders.
“Right now there is no thinking of increasing that allocation. We expect banks to go to the market and do what is best possible,” Lavasa said.
On a possible new date for the budget after the cabinet decided last month that would advance it from the end of February, Lavasa said the finance ministry is preparing the budget with an eye on 1 February as the likely day for its presentation.
“The final date will be decided by the government in consultation with the Parliament and (considering) the election dates…We did a reverse calculation so that we know when it should be presented so that whatever time the Parliament committee requires for scrutiny and appraisal, all that time is available. This brought us to 1 February. It could be a day here or there depending upon the final tuning,” he added.
On utilizing the extra Rs 15,000 crore in revenue that is expected to be mobilized by March-end on the Rs 65,000 crore of black money declared under the income disclosure scheme, Lavasa said the effort will be to put the money into infrastructure and other sectors to create jobs. “There are always takers for more resources so spending this money is not an issue,” he said.
Source: Mint
