The government has backed up and there’s no way the government can allow any bank to default,” financial services secretary Rajiv Kumar said. Express photo by Partha Paul.
The government “will not allow banks to default” under any circumstances and the amount of capitalisation sanctioned by the government for banks was “sufficient”, a top finance ministry official said.
“The recapitalisation amount that we worked out is sufficient. We have that with us which is Rs 65,000 crore which is left over of Rs 2.11 lakh crore. The regulatory capital of all banks is intact. The government has backed up and there’s no way the government can allow any bank to default,” financial services secretary Rajiv Kumar said.
Many PSU banks have posted big losses in the quarter ended March as bad loans surged after the RBI scrapped loan restructuring schemes to hasten the clean-up of near-record levels of bad debt in February. Punjab National Bank had posted a loss of Rs 13,417 crore and SBI Rs 7,718 crore loss for the March quarter of 2018. “When you do the cleaning part, a bit of dust, a bit of pain, is okay,” Kumar said on the sidelines of a seminar organised by MUDRA.
“The worst is over. It’s only the positive which can take place. It’s visible in the credit offtake. Now all the pain is past. Now it’s only clean lending which can take place. In one or two quarters, we will see provisioning requirements because of the recent circular which says Rs 2,000 crore plus cases go to NCLT. That’s an advanced accelerated provisioning taking place,” Kumar said.
“It’s cleaning of the books. It’s transparently recognising everything and in the process even if there’s a provisioning requirement or a loss, it’s okay. We are ready to take this. Exit routes are given, NPAs recognised, capital is given and reforms are introduced. We’re ranking all the banks on the reforms. At the end of every year, we will come out with the ranking. It can’t be more transparent than this,” he said.
The finance ministry expects banks to write back more than Rs 1 lakh crore after the resolution of all 12 NPA cases referred to insolvency proceedings by the RBI it its first list. Last week, Tata Group acquired controlling stake of 72.65 per cent in the debt-ridden Bhushan Steel Ltd for around Rs 36,000 crore will help in cleansing the banking system as well as boost lenders profitability. The remaining 11 NPA cases which are in the pipeline will easily bring to the table over Rs 1 lakh crore and the amount coming from resolution under the Insolvency and Bankruptcy Code (IBC) will directly add to the bottomline and help in reduction of NPAs of the public sector banks.
Last year in June, RBI’s internal advisory committee (IAC) identified 12 accounts, each having more than Rs 5,000 crore of outstanding loans and accounting for 25 per cent of total NPAs of banks. Following the RBI’s advisory, banks referred Bhushan Steel Ltd, Bhushan Power & Steel Ltd, Essar Steel Ltd, Jaypee Infratech Ltd, Lanco Infratech Ltd, Monnet Ispat & Energy Ltd, Jyoti Structures Ltd, Electrosteel Steels Ltd, Amtek Auto Ltd, Era Infra Engineering Ltd, Alok Industries Ltd and ABG Shipyard Ltd to NCLT.