Rs 1.80 lakh cr bad loans likely to be recovered in FY'19

After the Insolvency and Bankruptcy Code came into force, which calls for an auction of assets of loan defaulting entities, recoveries have picked up, said Jaitley.

Illustration: Uttam Ghosh/Rediff.com

Asserting that legacy issues are getting over, Finance Minister Arun Jaitley said on Tuesday that bad loans in the banking system are on the decline and recoveries of NPAs have picked up.

Banks recovered Rs 36,551 crore in the first quarter of 2018-19 and are expected to retrieve Rs 1.8 lakh crore in the whole year through the Insolvency and Bankruptcy Code and other means, a top finance ministry official said.

During 2017-18, banks recovered Rs 74,562 crore.

Speaking to reporters after the annual review meet with the chiefs of public sector banks, the finance minister noted that bad debts or NPAs in the banking system were on a decline.

Last several years had been challenging for public sector banks as a large amount of lending was held up in NPAs, he said.

But after the Insolvency and Bankruptcy Code (IBC) came into force, which calls for an auction of assets of loan defaulting entities, recoveries have picked up, he observed.

Recoveries are better, the lending ability of banks is much better and to top it all credit growth has significantly moved upwards, he said.

"Recoveries have picked up...it has not picked up not just because resolutions have taken place in the NCLT, they have also picked up because those debtors who fear that they are likely to cross the deadline are paying in anticipation of an IBC process being compelled on them.

"This has brought in some light at the end of the tunnel where recoveries are better, the lending ability of banks are much better...we have overcome what was traditionally described as the legacy issues and the faster we get out of them better it is for the Indian economy is concerned," he said.

Observing that Indian economy was passing through a phase of a good growth, he said banking activity was bound to pick up with encouraging consumption and growth figures.

"Obviously, the bankers also have a certain expectation, which I have told them we will certainly consider. Some of them did mention that the PCA (prompt corrective action) guidelines should be revisited because that is indirectly impacting their lending ability and that government should be more upfront in the capital requirement of some of these banks.

"I have assured them that we will immediately look at this subject because we are as keen as them, as every Indian is, that this opportunity is not missed because we want the cycle of high consumption, high growth, NPA recoveries, credit offtake really to be utilised to the fullest in order to help economy," he said.

Noting that banks' performance was on track during the first quarter, Jaitley said they have started making a net profit.

On the proposed three-way merger Bank of Baroda, Vijaya Bank and Dena Bank, Jaitley said this will help banking activity and create the country's third-largest lender.

He assured that there will not be any job loss and every job will be protected.

With stronger financials, the new entity would be better positioned to protect jobs of its employees, he stressed.

Meanwhile, Financial Services secretary Rajiv Kumar said banks in the meeting decided that they would mobilise over Rs 18,500 crore through monetisation of their non-core assets in the current financial year for strengthening their capital base.

At the same time, they would complete rationalisation of foreign operations by March 2019, with closure/consolidation of 57 branches or offices.

Kumar said banks expect to recover Rs 1.8 lakh crore through IBC and other routes during the current fiscal.

Besides, PCA banks would pursue their Quarterly Performance Milestones, including improvement in their lending risk profiles through a 6 per cent reduction in Credit RWA to Advances Ratio and 8 per cent reduction in Cost to Income Ratio.

Banks would complete action by December 2018 on fraud detection and initiation of action in respect of NPAs with outstanding of above Rs 50 crore, Kumar added.

Besides, the Finance Minister also launched a web portal (www.psbloansin59minutes.com), a transformative initiative in MSME credit space.

It will enable in principle approval for MSME loans up to Rs 1 crore within 59 minutes from SIDBI and five PSBs.

"It is a strategic initiative of SIBDI led PSB consortium incubated under the aegis of Department of Financial Services (DFS), Ministry of Finance.

“The portal sets a new benchmark in loan processing and reduces the turnaround time from 20-25 days to 59 minutes. Subsequent to this in principle approval, the loan will be disbursed in 7-8 working days," Kumar said.

In addition, Finance Minister launched Financial Inclusion Index which will be a measure of access and usage of a basket of formal financial products and services that includes savings, remittances, credit, insurance and pension products.

The index will have three measurement dimensions access to financial services, usage of financial services and quality.