CII points out ways to control Indian banks' NPA headache

Concerned about the deteriorating asset quality of banks, the Confederation of Indian Industry (CII) on Sunday outlined a five-point action plan for the government to deal with the issue of rising non- performing assets (NPAs).

"The five-point action plan focuses upon revamping the Corporate Debt Restructuring (CDR) mechanism, creating a special resolution mechanism for the infrastructure sector; setting up a national asset management company; liberalizing norms to increase capitalization of asset reconstruction companies, and improving the effectiveness of the insolvency regime," CII said in a statement.

India's steep economic downturn, accompanied by high interest rates, has led to a sharp deterioration in asset quality for the banking sector, and increased the pressure of NPAs.

"Owing to their impaired portfolios, the banks are hesitant to extend credit, and this affects growth in the corporate sector. Our suggestions are keeping this reality in mind," said CII director-general Chandrajit Banerjee.

The industry body said bad and restructured loans crossed 10 per cent of all loans in mid-fiscal 2013-14 and are expected touch the 15 per cent mark by the end of the financial year 2014-15.

The CII has written in this regard to the finance ministry and the Reserve Bank of India, asking them to deal with the steep deterioration in asset quality and turn around banks by releasing stress on their balance sheets.

Finance minister P Chidambaram had recently said that public sector banks are likely to post higher bad loans by the end of the just concluded fiscal year, while blaming large corporates for the state of affairs.

He said that during the April-December period, the banks had recovered Rs18,933 crore, which is only about 20 per cent of the total non-performing assets (NPAs) of about Rs192,000 crore in the banking system. But being Chidambaram, he of course did not mention that government diktats on state-owned banks are largely responsible for the problem.