Domestic investment is the only growth engine that still needs to pick up and banks must recover their loans to help boost private investment, Finance Minister Arun Jaitley said on Saturday while speaking on debt recovery.
He further said that a large part of the delays in recovery of loans was due to deliberate time-gaining actions taken by creditors.
“In the bulk of the cases where banks’ dues have to be returned, the defences are frivolous, if not a sham,” Mr. Jaitley said while speaking at a seminar on debt recovery at the State Bank Academy. “They are a time-gaining device and therefore the more we are able to delay the procedures, the more we are preventing the recovery, and the more we are preventing that investment from going into more fruitful hands,” he added.
“And therefore I think it is extremely important that we are sensitised that these are not ordinary cases,” the Finance Minister noted, adding “We have about 95,000 of them pending before the DRT (Debt Recovery Tribunal). And there we have to with great efficiency ensure the recoveries do take place.”
Mr. Jaitley went on to explain how the banks’ inability to provide credit to the private sector was preventing the economy from firing on all cylinders, since domestic private investment has suffered due to this.
“In terms of domestic investment, the situation is still challenging,” he said. “It is clear the Indian private sector needs to invest. And that is when all engines of the economy will start firing. And to support that, you need banks to ensure a flow of credit and support the private sector to expand,” he observed.
“The private sector, either impacted by large unutilised capacities, global slowdown, and sectoral stresses caused either by domestic or international factors, slowed down significantly,” Mr. Jaitley added. “Their balance sheets got very badly disturbed. And the stressed balance sheets of these companies started impacting the balance sheets of the banks because they were unable to service their loans,” he said.
The private sector’s willingness to invest, as measured by the total value of new project announcements, has remained subdued. New projects worth Rs. 44,607 crore were announced in 2015-16, down from the Rs. 54, 235 crore worth of announcements seen in the previous year, according to CMIE data. The first half of this financial year, however, has witnessed an improvement, with a 43 per cent increase in the value of new project announcements as compared to the same period in 2015-16.
Against this background, there is a dire need to introduce efficiency in the loan recovery process, since litigation, if allowed to continue endlessly, would be to the detriment of the entire economy, Mr. Jaitley added.
“If natural justice is carried to unnatural extents, the litigations would become unending,” he pointed out. “And therefore efficiency has to be introduced into the recovery procedures as far the defaulting parties are concerned. Every case that a litigant manages to delay hurts the larger investment environment. Because if money of banks are locked with some defaulters, it prevents the banks from funding thousands and lakhs of others who otherwise could have used the funds in more fruitful ways,” Mr. Jaitley said.
The Minister did point out that there were some silver linings with respect to private investment since urban and rural demand were both recovering, buoyed by the good monsoon, as shown by the festival sales.
And, apart from domestic private investment, the other two engines of capital creation — public investment and foreign investment — were doing well, Mr. Jaitley said.
“Public investment in India in the last few years has significantly picked up,” he said, adding “In this regard we have been helped by the global economic situation where oil and commodity prices being moderate have helped us in accumulating a lot of savings.”
“And therefore instead of squandering away those savings, we have partly passed on the benefit to the consumer so inflation is contained and we have partially passed on the benefit indirectly to the larger public interest by investing in infrastructure,” Mr Jaitley noted.
India’s robust growth rate when compared to other countries has also rendered in attractive destination for foreign investment, the Minister said.
“There is a beneficial environment as far as India is concerned,” he said. “Most counties in the world are either not growing or growing at a modest pace. Compared to them we have a much faster rate of growth. And therefore when the world compares possible places of investment, they find India more attractive,” Mr. Jaitley said.
“And to grapple with the global situation, countries have used unconventional methods like negative interest rates,” Mr Jaitley explained. “Compared to that, India gives far better returns. And therefore, we are among the countries that are getting far greater foreign capital,” he added.
