The possibility of floating an asset reconstruction company (ARC) and/or an asset management company (AMC) for faster resolution of stressed assets, need for consolidation to achieve global scale, setting up oversight committees for faster credit decisions and increasing flow of credit were among a host of issues taken up by public sector bank chiefs from the Western and Southern regions at a brainstorming session on Friday.
The meeting took place at the State Bank of India headquarters in the backdrop of the state-owned banks reeling under bad loans and losses, and conservatism setting in among bankers vis-a-vis lending
Finance Minister Piyush Goyal said: “A committee has been formed under the Chairmanship of Sunil Mehta, non-executive chairman, PNB, which over the next two weeks will come out with its recommendations.”
He added: “Bankers believe it may be worth considering setting up an ARC and/or AMC for faster resolution of assets that have multiple banks involved in these accounts (and where) a delay in their resolution causes loss of value to the banking system as a whole.”
This group will consider whether such an arrangement will be good for the banking system; it will also consider the modalities by which such an ARC and/ or an AMC should be set up.
Asked about the source of funds to set up the ARC and/or AMC, Goyal said, “It is too early to go to that level. We will have to wait till the committee has discussed with all the bankers and come up with a recommendation….” Funding from the National Investment and Infrastructure Fund could be one of the possibilities, he added.
Referring to the transparent mechanism developed by SBI for faster resolution of stressed assets, the Minister said: “I understand that all the bankers now wish to set up such a mechanism.” Some PSBs may consider having oversight committees, comprising retired judges, vigilance officials, regulators, and maybe some external expertise to help faster decision-making on the credit front.
SBI Chairman Rajnish Kumar said one of the topics discussed at the session was achieving global standard by Indian banks. “We made a presentation to other banks. There is fragmentation as far as Indian banks are concerned…If India’s growth story has to continue, banks have to become bigger,” explained Kumar.
Referring to the merger of five banks with SBI, Kumar said the initial four-five months were used to put the house in order. After six months, the bank started seeing the benefits: convenience, reach, superior technology. It made savings in excess of ₹1,000 crore due to the merger.
Goyal emphasised that the “government, the owner of the 21 PSBs, will not micro-manage what the bankers should do (on consolidation)… We believe in the autonomy of the banks; the banks will have to take the final call.”
P Jayakumar, MD & CEO, Bank of Baorda, said the (loan) share of banks that are under prompt corrective action and facing difficulty in lending will be taken up by other consortium members so that good borrowers continue to get credit. “Banks that have capital to lend will step up their share. In a consortium, where additional funding is required, if some banks are not able to participate, others will step up,” he said.
A ‘blinkered’ view
To a question on the RBI’s latest consumer confidence survey, which said households’ sentiments on the general economic situation for May 2018 worsened from the previous round, the Minister retorted: “Well, I think the facts speak for themselves. If, with 7.7 per cent growth, some people – I don’t know whether it is because of blinkers or whatever – have come out with a report which does not seem to gel with the reality… I have no answer. But there will always be naysayers.”