Banks must have flexibility to rejig bad loans: FM Arun Jaitley

NEW DELHI: Finance Minister Arun Jaitley backed the creation of a “political and economic” environment that will enable public sector banks to go after bad loans, pledging a structure that will embolden them to hammer out settlements without fearing the investigation of such deals later on. Jaitley also said two key laws would be amended to further empower banks to recover their outstanding dues.
“We have to create both political and economic environment for banks to have a healthy recovery. And that can’t take place in an environment of suspicion,” Jaitley said in an interaction in New Delhi on Monday. “Business losses caused the twin balance sheet problem. So you have to address the sectors and reverse the cycle, I think that’s more important.

And, banks must have the flexibility to settle,” the finance minister said, asserting that such settlements shouldn’t be regarded with suspicion.

The government will strengthen the legislative framework to help clean up the balance sheets of public sector banks.

“We are going to amend the Sarfaesi (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) and DRT (debt recovery tribunal) laws in order to make recoveries faster, so they have to come in tune with the bankruptcy law,” Jaitley said. These will strengthen the bankruptcy law, which is expected to be passed in the second half of the Budget session. He said bank managements can be empowered to seek settlements by amending the Prevention of Corruption Act and creating an ombudsman-like mechanism.

“These both together will help. This would be a body which would cushion bank officials on settlements,” he said. ET reported on Monday that the government was considering the establishment of such a body.

Gross non-performing assets (NPAs) of state-run banks more than doubled to 6.78% of total loans at the end of December 2015 from 3.22% at the end of FY13. Jaitley said India is undergoing a burst of reforms comparable with those unveiled a quarter of a century ago.

“Each of the steps, whether in direct tax, indirect tax, FDI (foreign direct investment) reforms, auction rather than discretion — each one of them is a big-bang step and when the history of reforms is written, post-’91, irrespective of what happened in 1991, this will go down as (among) the most important phases of reforms,” he said.

Asked if reform of public sector banks was possible without change in ownership, he said the country’s political opinion wasn’t ready for it. “Why should I theoretically embark upon an area for which the polity is not ready? I think the politics is ready for professionalising their management, for having board-governed banks, for having consolidation, for more competition from private sector, for more public sector banks being run as private sector banks,” he said.

The finance minister, who leaves for the IMF-World Bank meetings on Tuesday, said the economy is moving in the right direction.

“We have reformed, we are spending more, we are spending in the right direction and we are sticking to fiscal prudence. We are doing all the right things in a global environment which is not friendly. So, assuming these things had happened in a friendlier environment, you’d certainly be growing much faster,” he said. Most leading indicators such as the purchasing managers’ index and core sector growth suggest an uptick in the economy in the past two months.

“I think the economy is picking up. We can see a booming service sector. We can see improvement in manufacturing sector, lot more activity in mining sector and if agriculture does well it’ll leave an impact. First two years, rain gods have not been kind to us, so I hope this year we will have a good monsoon,” he said.