In a bid to stem the bleeding of public sector banks engendered by soaring non-performing assets (NPAs), Union Finance Minister Arun Jaitley on Saturday batted for greater autonomy to be given to PSBs.
“Banks need to be given greater leeway for taking commercial decisions with a commercial mindset,” said Mr. Jaitley on the concluding day of the ‘Gyan Sangam’ bankers retreat.
Expressing grave concerns on the massive surge in bad loans, Mr. Jaitley said the level of NPAs in the case of some State-owned banks was “unacceptable”.
The ratio of stressed loans to their total advances (till September last year) for PSBs stood at a staggering 12.9 per cent, as opposed to the ratio for private sector banks, that was pegged at 4.4 per cent.
The Finance Minister said he has sought a reform blueprint with “bold, structural ideals” from the working groups constituted to usher in sweeping reforms across the 27 PSBs in the country.
“The bankers know best where the shoe pinches. I am certain this conference will pave the way for a new roadmap,” he said.
Mr. Jaitley also touched upon the government’s plans to dilute stakes in PSBs, commenting that the process would be “at a fair valuation.” A report by Fitch Ratings last month posited greater flexibility for PSBs in raising capital from the equity market if the government went ahead with its stakes’ dilution plan.
“There is also a pressing need for attracting the best talent into PSBs,” stressed Mr. Jaitley, adding that the government fully recognised the important role performed by PSBs and was committed to boosting liquidity of the healthy ones.
At the same time, the Finance Minister hinted that the reforms would in no way hinder the government’s objective of progressing towards a non-inflationary, high-growth trajectory.
“We are looking to achieve a growth rate of 7-8 per cent and are confident of meeting our fiscal consolidation targets. The economy is at a transformational stage and there is a need for the banking system to finance infrastructure development in the country,” he said.
According to sources, radical reforms to revivify PSBs could sound the death-knell of the Sick Industrial Companies (Special Provisions) Act (SICA) after many bankers sounded their opposition to it during discussions with Mr. Jaitley.
Sources said that the Finance Minister had hinted that the government was thinking of ways to bypass the recent Supreme Court verdict that upheld SICA over the Recovery of Debts Due to Banks and Financial Institutions Act (RDDB), making recovery of bad loans a most cumbersome process for banks.
