A sell-off in global markets has set off a chain reaction impacting stocks the world over, including India, and there is no need for an “exaggerated panic” as the country’s economic fundamentals are strong, Finance Minister Arun Jaitley said on Friday.
“There could be several reasons, which are predominantly outside the country, the uncertainty in the Fed rate or what’s happening in Europe or the slowdown anticipated in China… these global factors will remain and will have to be tackled globally by those economies... there need not be any exaggerated panic in India for the reason that India as an economy even in the midst of global slowdown has clearly stood out to maintain a 7.5 per cent plus growth rate,” Mr. Jaitley said in a statement (or told reporters?). The market rout on Thursday wiped out investors’ wealth worth Rs. three lakh crore as the benchmark Sensex fell more than 800 points amid a massive sell-off in banking shares and worries over the global economic slowdown. Shares of state-run lenders had fallen 12.4 per cent due to a mountain of bad loans and disappointing earnings.
The government is considering steps to ensure recovery of bad loans or non-performing assets (NPAs) of the banks so that the problem can be contained, Jaitley said.
“The bankruptcy law is under active consideration… The government is also considering some further steps to empower banks to be in a position to recover these monies (non-performing assets),” he said. “I think it’s a problem which will soon come under control.”
He also said that the government is fully committed to support public sector banks by providing capital as they play important role in supporting the Indian economy. This support is also required for further growth.
These are the loans which have earlier at point of time given by these banks and as a part of prudent policy the balance sheets should be transparent, he said.
The statement came a day after Reserve Bank Governor Raghuram Rajan said that “deep surgery” was required to clean up and that the process of recognising the NPAs was akin to an “anesthetic” needed for the procedure.
Dr. Rajan had said it is the process of the asset quality review (AQR) that has eroded banks’ bottom-lines and is resulting in sharp drops on the bourses in the banking stocks prices.
He said that a repeat of the process wasn’t expected: We do not envisage a sequence of AQRs.”
The gross NPAs of public sector banks increased to Rs 3.01 lakh crore by September-end, as against Rs 2.67 lakh crore in March, according to latest available data.
