The government is looking to impose strict deadlines on banks that are under the Reserve Bank of India’s watch to implement a turnaround plan. This will include fixed targets for recoveries of bad loans, sale of non-core assets and a differentiated lending road map with each bank specialising in a particular area.
“These approved targets would be ratified by the boards of the respective banks and we expect a faster turnaround in some cases,” said a finance ministry official. The finance ministry is on Thursday scheduled to review the performance of around 11 banks under RBI’s prompt corrective action framework.
Another government official aware of the deliberations said the government doesn’t want these banks to slip further and face restrictions similar to those on Dena Bank and Allahabad Bank. “Some of these lenders have strong regional presence and they can use that to their advantage rather than focusing on large corporate loans,” the official said. Some of them will immediately benefit if the resolution at some of the large insolvency cases come through, he added.
Earlier this month, the Reserve Bank imposed certain restrictions on Allahabad Bank, including a directive to reduce exposure to un-rated and high-risk advances. Dena Bank was asked to avoid taking fresh exposure. Asenior banker who has attended afew meetings with the finance ministry said the government has been pushing banks to exit from all strategic investment in unrelated businesses, including in real estate, to garner more resources.
“They (ministry officials) don’t have a viable plan and are just blaming the banks for the lending done in the past,” he said, adding that more banks are expected to slip and post high losses. “The whole EASE (Enhanced Access and Service Excellence) plan has flopped. The government needs to have some out-of-the-box solution and not blame banks alone,” said MP Shorawala, a former independent director at Central Bank of India.
The gross non-performing assets or bad loans of state-run banks stood at around Rs 7.77 lakh crore at December-end. In January, the government announced its EASE reform agenda along with a Rs 2.1 lakh crore capital infusion plan, of which Rs 80,000 crore have already been disbursed. It was decided that this infusion would be contingent on performance of the banks on the reform undertaken, which would be evaluated by the respective bank boards.
Under EASE, banks were to set up specialised monitoring agencies for loans above Rs 250 crore and a separate vertical for non-performing assets, apart from rationalising overseas businesses. They also need to have a minimum 10% exposure in consortium loans to prevent a situation in which too many lenders are involved when it comes to debt resolution.