Govt, banks grope in the dark in their battle against bad loans

The government is working on various options in its effort to bail out the non-performing asset-laden banks. However, the absence of fresh capital infusion and the difficulty in getting right buyers have been creating roadblocks for the government and the banks as well. Even the merger plan of the banks also appears to be a daunting task when it comes to implementation.

The high-level Sunil Mehta Committee, formed by the Modi Government to look at the faster resolution of stressed assets, is likely to submit its report in a week’s time. On June 8, Union Finance Minister Piyush Goyal had announced in Mumbai that a high level committee had been formed by the government under the chairmanship of the present non-executive chairman of Punjab National Bank, Sunil Mehta, which would interact with bankers and other stakeholders to come to a conclusion as to whether the formation of an asset reconstruction company (ARC) or asset management company (AMC) would be the right solution to fight the menace of bad loans piling up with the banks.

A senior official of State Bank of India told National Herald on the condition of anonymity that the committee was still working on its recommendations.

The managing director and chief executive of another large state-owned bank, who was also present in the June 8 meeting, said that either of the two ideas—ARC or AMC—will be good for the banks and help them in fast resolution of the stressed assets.

The committee is currently holding discussions in great detail with the bankers, who believe that it may be worth considering setting up an ARC or AMC for faster resolution of stressed assets. Multiple banks are laden with stressed assets, the resolution of which gets delayed, causing a loss of value to the banking system as a whole.

This panel will consider whether such an arrangement will be good for the banking system and, if the suggestion goes through, they will also consider the modalities by which such an ARC or AMC should be set up.

The committee is also working on the idea of merger of smaller banks with the bigger ones. However, the idea has to come from the banks themselves as they have to tell the government which banks they would like to merge with.

There is no word yet from the government if it was thinking of further infusion of capital into the banks to help them come out of the bad loan menace.

The bankers now want to have such a mechanism which will enable faster resolution of the stressed accounts in a very transparent and speedy manner. Gross NPAs of banks have already hit the ₹10,00,000 crore mark for the year ended March 2018 with public sector banks accounting for ₹8,90,000 crore NPAs. Private sector banks shoulder the rest. Losses of PSU banks for the quarter were over ₹62,000 crore.

The delay in appointment of heads of state-owned banks by the government is also adding to woes. In the absence of the head, the middle and senior level bank officials shy away from taking any major decision in the finalisation of loans. Keeping this in view, Goyal has said that the government will fill up all the vacant posts in public sector banks within a month’s time.

Here lies another catch. Appointment of managing director and chief executives in public sector banks is a long-drawn process and it appears to be a difficult task before the government to do the job in a month’s time. Goyal has recently said that the recently revamped Bank Board Bureau, which is responsible for filling up vacant posts at the top positions at state-owned banks, was working hard to filling up the vacant posts of chiefs of public sector banks within a month’s time. But it’s one thing saying it and quite another getting it done.

Even the government’s experiment of appointing top officials at the state-owned banks from outside hasn’t worked well. The government had appointed MD & CEO at a few banks like Canara Bank and Bank of Baroda from outside the banking service but it has not worked.

Banks have written off a record ₹1,44,093 crore of bad loans in the financial year ended March 2018

Yet another major challenge before the banks is the sale of non-core assets to meet their capital requirements. The problem is in getting proper buyers.

Let’s have a look at the grim scenario. As per media reports, SBI alone wrote off ₹1,23,137 crore over the last 10 years, while Bank of India wrote off ₹28,068 crore followed by Canara Bank with ₹25,505 crore and PNB with ₹25,811 crore, according to ICRA figures.

To put matters in perspective, banks have written off a record ₹1,44,093 crore of bad loans in the financial year ended March 2018—up 61.8% from ₹89,048 crore in the previous year.

The scenario is not encouraging for the private sector banks too. Private banks wrote off ₹23,928 crore in the year ended March 2018 against ₹13,119 crore the previous year. Axis Bank wrote off ₹11,688 crore and ICICI Bank ₹9,110 crore. The total write-offs by private banks in the last 10 years amounted to ₹79,490 crore.