Jaitley offers to empower banks to recover bad loans as NPAs mount

A day after Reserve Bank governor Raghuram Rajan said public sector banks are on a corrective course and would soon be nursed back to full health, finance minister Arun Jaitley also today said the government would announce more steps to empower banks recover bad loans and that the problem will be contained soon.

"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). I think it's a problem which will soon come under control," he told reporters at the North Block.

Jaitley's assurances come after state-run lender State Bank of India (SBI), also the nation's largest lender, on Thursday reported a massive 67 per cent fall in consolidated net profit at Rs1,259.49 crore in the quarter ended 31 December 2015, joining its peers in cleaning up the book, and classified loans worth Rs20,692 crore as bad loans.

SBI also warned of more pains in the current (January-March 2016) quarter to meet the Reserve Bank's directive to clean books by the end of the fiscal year as the bank has only provided for about half of its stressed assets.

The SBI group had posted a profit-after-tax of Rs3,828.20 crore in the third quarter of the last fiscal.

On a standalone basis, the bank's net profit dropped a massive 61.67 per cent to Rs1,115 crore from Rs2,910 crore due to increase in bad loans and the resultant higher provisioning.

During the quarter, SBI recovered Rs659 crore of bad loans while it upgraded Rs378 crore. It also wrote off Rs3,697 crore and sold Rs395 crore of bad loans to asset reconstruction companies.

The bank also refinanced seven accounts worth Rs7,743 crore under the 5/25 scheme and has a pipeline of Rs4,000 crore more.

Jaitley, while observing that there is a problem of NPAs, "these are the loans, which have earlier in point of time given by these banks and as a part of prudent policy it has been considered the balance sheets should be transparent. The banks are going to take all steps possible to recover the loans from debtors."

He said Reserve Bank through various policies have empowered banks to recover NPAs.

As of September, gross NPAs of PSBs have increased to Rs3,01,000 crore as against Rs2,67,000 crore in March.

Jaitley, however, disapproved of exaggerated reports in the media with regard to the state of the public sector banks. "In any case the volume and extent of the problem should not be exaggerated so as to lead to any panic," he said.

Yesterday, Reserve Bank governor Raghuram Rajan also assured that there won't be a repeat of the asset quality review (AQR) that has shaved off banks' bottom-lines.