Finance Minister Arun Jaitley and Reserve Bank of India Governor Raghuram Rajan have cautioned against overemphasising the issue of bad loans at banks and wilful defaulters as this could hamper growth.
“We don't want to create a situation where we overstate the crisis and in the process the whole activity of lending for growth itself starts suffering because people become extraordinarily defensive,” Mr. Jaitley said while briefing reporters after a meeting with the RBI Board on Saturday. “We don't want to reach that situation,” he said.
Mr. Rajan said the economy was recovering and that he was satisfied with the quantum of capital infusion promised to banks by the finance minister in his budget speech.
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“We have to be careful that we penalise criminal action but at the same time we don't indulge in a broad fishing expedition which then becomes a reason for banks to get worried about making loans which then hamper the recovery as well as hamper the absolutely important investments in infrastructure that have to take place,” Mr. Rajan said. The amount of Rs.25,000 crore, earmarked for capital infusion for public sector banks, was “reasonable.”
“The combination of the capital put in by the government and the capital put in by the RBI should be enough,” the RBI Governor said.
The gross non-performing assets (NPAs) of the public sector banks increased from 5.43 per cent, or Rs 2,67,065 lakh crore at the end of March 2015 to 7.30 per cent or Rs 3,61,731 lakh crore in December 2015, according to a Press Trust of India report. Mr. Jaitley expressed hope that the NPA situation, which has been created on account of an overall economic environment and slowdown in certain sectors, would see improvement.
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“As the revival of those sectors takes place, you will certainly find cleaning up of balance sheets, which also takes place because over the next few quarters they would probably have a possibility of reviving,” he said.
The Index of Industrial Production (IIP) numbers for January, at -1.5 per cent, represented the third consecutive month of contraction in industrial activity.
“We are in recovery. This is something we have said before. It is still volatile, however. It is not the strong and sustained growth that we need. Not all the indicators are moving in the same direction. The IIP numbers, for example, were disappointing. But there is a recovery taking place,” Mr. Rajan said. On the issue of wilful defaulters, in the wake of Vijay Mallya’s massive default on loans and subsequent departure from the country, Mr. Jaitely said: “So it’s that limited category where there is some kind of a prima facie misconduct or misdemeanour, which has taken place by the individual. It’s those areas which will be looked into differently.”
Minister of State for Finance Jayant Sinha said the central bank “has done a commendable job in defining the different types of accounts. Banks have been emboldened to take stronger penal action against wilful defaulters. These defaulters cannot access the financial system any more, once they have been classified as wilful defaulters,”
Finance Minister Jaitley said that the RBI Board had many suggestions and questions regarding the budget, one of them being for the extension of the Direct Benefit Transfer-Aadhaar platform to the interest subvention benefits offered by the government.
“We had a lively discussion. There were a substantial number of compliments on the budget and the focus of fiscal responsibility as well as the number of reform measures,” Mr. Rajan said.