NPAs Were Kept Under The Carpet For Years: Arun Jaitley

Stressing upon strengthening the banking sector of the country and the ongoing NPA issue, Finance Minister Arun Jaitley blamed the banks for indiscriminate lending in the previous years.

“The non-performing assets (NPAs) were kept under the carpet for years but are now improving. Between 2008 and 2013 public sector banks were engaged in indiscriminate lending. The NPAs were kept hidden for years and came out transparent only after 2015,” said the minister.

He also mentioned that the public sector banks have adequate lending capacity now, post demonetisation, but the capital adequacy has been eroded with excessive NPAs.

Having recognised NPAs transparently, this is the time for take-off, said Rajiv Kumar, Financial Services Secretary.

Under a 'realistic recognition' of banks’ NPA situation, the secretary said the NPAs jumped from 36 per cent in the March 2014 to 82 per cent in June 2017. Latest available data suggest some 39 listed banks had amassed Rs 8.35 lakh crore worth of non-performing assets.

State-run banks such as IDBI Bank, IOB, UCO Bank, Bank of Maharashtra, Central Bank, Dena Bank, Union Bank and Corporation Bank had gross NPAs in excess of 15 per cent of gross advances as per their latest disclosures.

In the big bonanza revealed by the government, the cabinet approved Rs 2.11 lakh crore recapitalization package for state-run banks.

The big announcement came during the minister’s media address in New Delhi, where the top officials talked about strengthening the public sector banks and enabling them to lend to key productive sectors in the economy.

Of the Rs 2.11 lakh crore recapitalization package, Rs 1.35 lakh crore will come from recap bonds and Rs 76000 crore from budgetary support and market-raising.

"It was decided that a bold step needs to be taken now by the government to recapitalise banks," said the minister who also elaborated on the need to increase public investment and boost infrastructure spending.

On the question of whether the recapitalisation bonds will impact the fiscal deficit, the minister clarified, “Whether or not the recapitalisation bonds will impact fiscal deficit is a function of what the nature of the bond will be and which agency issues the bonds. But even if it is a part of the fiscal deficit, it will be in the larger interest of the nation.”

He further added that the share sale of state-owned banks will become attractive after recapitalisation.

Once the banks are strengthened, the appetite for their stock will improve.

The fund infusion through increased lending will have MSME in the high priority area.