Offering to aid sectors of the economy hit by the downtrun, Finance Minister P. Chidambaram, on Thursday, said the government would work out a strategy to assist such industry segments.
“If the economy improves and growth improves, the sectors (which are not doing well) will recover. But, in the meanwhile, we will have to do some handholding and try to help these sectors recover”, he said while addressing a press conference after meeting the heads of public sector banks here. The government would have to look at rising non-performing assets (NPAs) sector-wise and find ways and means to help them, he said, adding the “NPA was reflection of the slowdown in the economy”.
The NPAs of the public sector banking group had increased by 0.98 per cent in the one-year period ending September 2012 mainly on account of the stress being faced in sectors such as infrastructure, steel, construction, textile, food process and telecom infrastructure, the Minister said. On the positive side, Mr. Chidambaram said housing and automobile sectors had been doing well on back of decline in EMIs.
The Minister said the government would soon finalise capital infusion for the PSU banks and the beneficiaries would include Indian Overseas Bank, Central Bank of India and Bank of Maharashtra. The government had proposed to inject Rs.15,000 crore of capital in PSU banks.
Referring to the issue of new banking licences, Mr. Chidambaram said he had written to the Reserve Bank of India to initiate the process of issuing guidelines and start accepting the licences pending approval of the Banking Regulation Amendment Act by Parliament.
Stating that slowdown was a temporary phenomenon, the Minister said the “situation is not alarming” and would improve with recovery and bad loans would become standard accounts.
“A bit of handholding (is needed) to help the sectors or the industry or the unit to tide through this difficult period...and when the economy recovers, these accounts will indeed become standard accounts”, he added.
Kisan Credit Cards
Referring to the issues concerning the farming sector, Mr. Chidambaram said all Kisan Credit Cards (KCCs) would be converted into ATM cards and that agriculture sector credit disbursal target of Rs.5.75 lakh-crore, up from Rs.4.75 lakh-crore in the last fiscal, would be met.
A new draft of the credit guarantee scheme would be placed before the Cabinet in the next seven to ten days, the Minister added.
On the issue of NPAs in the banking sector, Mr. Chidambaram said the RBI guidelines permitted restructuring of loans.
“Just because an account has become an NPA, it does not mean that it cannot be restructured. In fact, it (RBI guidelines) allows for restructuring of an account. I think all the chairpersons are sensitive to this matter, and am sure we will see through this difficult period (till) the economy recovers and the accounts become standard accounts”, he added.
The banking sector, Mr. Chidambaram said, needed to play its role in giving a push to the economy by helping those sectors which had been facing the heat of slowdown.
There had been a sharp uptick in credit in housing and automobile sectors with increase in number of units sold, he said, adding the same had not happened as far as consumer durables and consumer non-durables were concerned.
“While the reduction in interest rates and the reduction in EMIs have indeed helped the housing sector and the automobile sector, it is not so evident in the consumer goods sector”, he said, adding banks could not reduce interest rates further in the absence of rate cut by the Reserve Bank.
On reluctance of the RBI to cut interest rates, Mr. Chidambaram said, “It’s a matter of judgment. The RBI has made its judgment”.