Worried over the spurt in bad loans, bankers, on Tuesday, asked the Finance Minister to consider setting up a National Asset Management Company to deal with the problem and address capital issues of state-owned lenders.
“There were some suggestions on setting up of National Asset Management Company,” Financial Services Secretary G. S. Sandhu said after Finance Minister Arun Jaitley’s pre-budget meeting with heads of banks and financial institutions here. The proposed asset management company will take over large non-performing assets (NPAs), or bad loans, of banks and help in reviving companies ridden with bad debts.
“Major suggestions included...statement in budget regarding recapitalisation of public sector banks, dilution of government ownership in public sector banks up to 51 per cent...,” the Finance Ministry said in a statement.
Other recommendations included implementation of recommendations of the Naik committee report, removal of mismatch between asset liability and banks’ balance sheets and need to revise the definition of priority sector lending, among others, it said.
In his opening remarks, Mr. Jaitley said the slowdown in economic growth, coupled with high inflationary pressure, posed a challenge to the economic environment.
“We together need to steer the economy in the right direction,” he said.
Gross NPAs
Gross non-performing assets of public sector banks rose to Rs.2.03 lakh crore at the end of September, 2013, from Rs.1.55 lakh crore on March 31, 2013.
The level of NPAs in the domestic banking system was 4.4 per cent of gross advances at the end of December, 2013.
“There was discussion on NPA. There was also a proposal for setting up of National Asset Management Company for improving the performance of DRTs (debt recovery tribunals) to collect loans,” HSBC India country head Naina Lal Kidwai said after the two-and-a-half hour meeting. Suggestions were made to strengthen the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act to ensure fast recovery of bad loans, she said.
There was a recommendation to raise the tax benefit limit for health insurance, and for tax exemption under Section 80C of the Income Tax Act to be enhanced from the existing Rs.1 lakh per annum. Some also pitched for continuation of interest subvention scheme for investment lending in the agriculture sector, insurance awareness to be made part of corporate social responsibility and interest subsidy for solar power projects.
Public sector banks sought a long-term instrument to finance infrastructure, and the issue of tax-free bonds for development of the sector.
“There were suggestions on recapitalisation of banks, financing of infrastructure. All the public sector banks need capital. There were issues about infrastructure lending because that is the need of the day,” Central Bank of India Chairman and Managing Director Rajiv Rishi said. Banks and insurance companies also wanted tax benefits for their products.
Kotak Mahindra Bank Managing Director Uday Kotak said the government should consider listing of Life Insurance Corporation of India (LIC). Over the next few years, the government should seriously consider listing of LIC. The kind of money the government can raise by listing LIC is significant. It can fund...needs of public sector banks as well as the fiscal deficit,” he said.
“I am not saying that this is an idea which necessarily needs to be in the July budget, but over the next few years. Listing of LIC may be a game changer in the financial sector,” Mr. Kotak added.
He suggested changes to the Rajiv Gandhi Equity Saving Scheme to encourage a shift from gold and real estate to the equity market.
There was a need to boost venture capital and alternate investment funds to meet the capital needs of small and medium enterprises, he added.
In order to increase savings, there were suggestions to raise the tax exemption limit to Rs.2 lakh from Rs.1 lakh, and increase the mediclaim tax exemption limit to Rs.50,000 from Rs.15,000 a year.
Besides, a recommendation was made to double the minimum threshold for tax deducted at source for interest earned on fixed deposits to Rs.20,000. If accepted, tax would be deducted if interest on fixed deposits crosses Rs.20,000. The Finance Industry Development Council, a representative body of all asset financing NBFCs, sought tax parity between banks and NBFCs.
The coverage of systemically important NBFCs under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act needs to be given priority, FIDC Director Raman Aggarwal said.
