Goyal further said that sub-committees will be set up by all the banks to have “stronger risk assessment mechanism”.
The Centre on Tuesday decided to adopt a two-pronged approach to improve functioning of functioning of public sector banks (PSBs) by “ironing out issues of consortium-based lending” and identifying “good borrowers.
“A committee under Mr Jayakumar (managing director and chief executive officer of Bank of Baroda) has discussed various aspects of credit flow, particularly to micro, small and medium enterprises,” Piyush Goyal, interim Finance Minister, told reporters.
Goyal was addressing media after interacting with various bank chiefs from northern and eastern part of the country. He said that bank chiefs have “made decision” to extend credit to MSMEs and “genuine small businesses”.
“One of the thoughts before the PSBs has been that they will have to get into the act of working to support MSMEs and genuine good companies who need working capital finances or loans or investment asset but have had some difficulty in the past,” Goyal said.
About Rs 27 lakh crore loan is parked with MSMEs, according to banking officials. Bankers, now, have decided to push economic growth on the back of such “good borrowers” in two stages.
“In the first stage, (accounts will be taken up of those borrowers) who have borrowings between Rs 200 crore and Rs 2,000 crore… In the second stage, accounts of up to Rs 200 crore will be taken up,” Goyal said.
The interim FM said that PSBs have approximately 4,500 accounts under first category. The accounts, which are mostly consortium based, will be thoroughly studied by bankers over the next two weeks to study genuine borrowers. This will be done to identify accounts that are in the business seeing an uptick, which can be further supported by the banks.
He further said that, all the bank chiefs will have a “creditors arrangement or agreement” to iron out issues in the consortium lending.
“All bankers will take upon themselves to work as a team… It was also decided that bankers will adopt the Insolvency and Bankruptcy Code’s (IBC’s) 66 percent threshold limit to be binding on the consortium,” he said adding, “bankers will follow the decision taken 66 percent of the lenders in a consortium”.
Early this month, Ram Nath Kovind, President, had approved promulgation to IBC Ordinance, 2018 paving way to bring down decision taking threshold for lenders at 66 percent from 75 percent.
Goyal further said that sub-committees will be set up by all the banks to have “stronger risk assessment mechanism”.
“These committees will help banks to ensure that the processes (defined by banks) are robustly followed and suggest if any upgradation of resources, technologies, human resources is needed,” he said.
State Bank of India, the country’s largest PSB, has suggested that ex-vigilance expert, former judicial officers or former banker could be part of the committee.
PSB chiefs, who addressed the media, said that PSBs want to lead the economic growth and that the “signs of revival in the economy should be taken to higher level”.
“The major issue is of flow of credit and asset quality because of which, some of the banks are under prompt corrective action by the Reserve Bank of India,” said Rajnish Kumar, Chairman, SBI. “Banks that are relatively stronger are willing to take up lending activity of a particular bank which is weak”.
He said that bankers were working towards improvement of consortium working and multiple banking arrangements to have healthy banking system.
Goyal on RBI’s power over PSBs
Goyal said that the RBI has enough power to oversee the working of a PSB. The government, however, was open to discussion.
“It is his (Urijit Patel, RBI governor) views with regards to regulation and supervision. We believe that powers are available with the reserve bank… (but if) there are any more powers required, government is very open to that (conversation),” he said.
RBI Governor, Urijit Patel, last week informed a Parliamentary Standing Committee on Finance that the RBI has “inadequate” power over PSBs and demanded more power to regulate them.
It must be noted that PSBs don’t come under the Banking Regulation Act, 1949 and are treated as corporations.
Consolidation of PSBs
Kumar of SBI said that banks were still discussing the idea to consolidate banks.
“It was a food for thought which has been given and individual banks will use that and look for the opportunities,” he said.
The chairman, however, added that banking community unanimously believes that the PSBs are presently “fragmented”.
“The size of SBI and the next PSB is huge… But like any other issue, this move has pros and cons… The issues needs deliberations… But there is a unanimity that this type of fragmentation is not good,” Kumar said.
Govt behind Bad Bank?
The interim FM said that government was not “behind” creation of bad bank and that it may not finance it.
“A committee headed by Sunil Mehta (non-executive chairman, Punjab National Bank) is studying a proposal to study whether they (bankers) should have an ARC and/or Asset Management Company (AMC) or not… The committee is deliberating on it nand discussing with the stakeholders… Government is not managing the Asset Reconstruction Company (ARC)… It is only facilitating the bankers to talk,” Goyal said.
Centre had recently suggested having a “bad bank” like institution which would help banks clean their balance sheet.
A ‘bad bank’ helps banks clear their balance sheets by transferring the NPAs, thereby improving asset quality and balancing assets with liabilities. In January 2017, the Economic Survey had suggested that a centralised Public Sector Asset Rehabilitation Agency (PARA) could be established.
He, however, said that government was “committed” to providing “requisite capital” to the banks.
In the last fiscal, PSBs collectively registered losses of Rs 87,300 crore. Of the 21 PSBs, only two banks posted profits.
The net loss posted by state-owned banks was about Rs 85,370 crore in 2017-18 as against a net profit of Rs 473.72 crore in the previous fiscal. The NPA in the banking sector stood at Rs 8.31 lakh crore as of December 2017.
Weak financials due to mounting bad loans have pushed 11 banks, out of 21 state-owned banks, under the PCA framework of the RBI.
