Policy announcement on tackling bad loans in 'couple of days': Jaitley

The government is going to announce a policy to push for the quick settlement of the non-performing assets (NPA) at banks in a 'couple of days', said Finance Minister Arun Jaitley at CNBC-TV18's IBLA Awards.

The decision will be taken in tandem with the Reserve Bank of India.

Jaitley refused to reveal whether the policy would be along the lines of a 'bad bank' or super asset resconstruction companies (ARCs).

This is in line with the government’s plan to quickly charter out a resolution mechanism to resolve and recover the mounting bad loans in the banking sector, especially public sector banks.

Bad loans of PSBs rose by about Rs 1 lakh crore during the April-December period of 2016-17, the bulk of which are accounted for by the infrastructure sector - power, steel, roads - and textiles.

"It is not that hundreds and thousands of businesses have created this problem. The problem of big NPAs is confined to essentially 30-50 companies. Therefore those 30-50 accounts need to be resolved," Jaitley said at the event on Thursday.

Last week, Jaitley had said the RBI has set up an Oversight Committee to look into process of the cases referred to it by the different banks.

The government in its economic survey ending January has suggested to set up a bad bank in the form of a public sector asset rehabilitation agency (PARA), while the Reserve Bank of India’s deputy governor Viral Acharya came out with a similar plan devising a two-way approach a Private Asset Management Company (PAMC) and a quasi bad bank National Asset Management Company (NAMC).

Gross NPAs of public sector banks increased to Rs 606,911 crore while total stressed assets (gross non-performing assets and restructured standard advances) of scheduled commercial banks were Rs 9.64 lakh crore as on December 31, 2016.

The deterioration of large loans that started in September 2008 continued until the last quarter ending December 2016 and is likely to continue for a couple of quarters.

NPAs reached 9.3 percent of the total credit extended by the entire (public and private) banking system taking the absolute bad loans worth nearly Rs 7 lakh crore, while NPAs of public sector banks were 11 percent of the total loans accounting for over 80 percent of bad loans.

Below is the transcript of Arun Jaitley’s interview to CNBC-TV18’s Shereen Bhan.

Q: When do we actually see the bills go through parliament? The expectation was that this week itself. Is it likely to happen tomorrow or next week?

A: I think next week is more likely for the reason that the council cleared those bills only last weekend and thereafter there is a long procedure involved. It involves clearing those draft legislations by the cabinet, the legislative department has to do the final corrections. Then the statement of objects and reasons has to be done for each of those legislations, all that exercise has now been completed in the last 2-3 days. So, people have been working almost round the clock. It goes for presidential assent. I have already given notice and hopefully one of these days, early next week it should be introduced in parliament and then taken up for consideration.

Q: So, July 1 2017, is that now the rollout date as far as the GST is concerned?

A: It looks likely. Why I say it looks likely? Because the entire exercise of division of work administratively between the centre and the states has been done. We need to form 9 different regulations, four of them have already been approved by the council, some marginal changes may be required. The other 5 – the drafts are being prepared and they are going to be circulated to the states. We are meeting on March 31 2017 and hopefully those regulations will be approved on March 31. Those regulations don’t require parliamentary approval, they are just to be placed before the parliament. Then there are at least 6 legislations, 5 by the central parliament and 1 by each of the state assemblies.

Out of the 5 before central parliament, 4 are to be cleared by the GST council which they have done - that is the CGST law, the IGST law, the compensation law and the UTGST law. The fifth one is because consequential changes are required in all our other tariff laws. So, that has also been done, that has been approved by the cabinet yesterday – the fifth law. So, hopefully all 5 should be before parliament next week.

The sixth law which again has been approved by the council which is the SGST now will start going before each of the state assemblies.

Q: The big question of course is as far as the fitment of rates is concerned and that is not going to be a matter that the GST council will take up when it meets on March 31. By when do you expect that there will be clarity on the rates?

A: After March 31 meeting our experts who have been assisting the council will start working on the rate structure. In the first instance so as not to upset the apple cart, we are following a more logical arithmetic formula which is how much is the central excise a particular commodity is paying, how much is the VAT it is paying, what is the total amount of incidental taxes you are pay and we try and fit you next to the nearest slab. So, if let us say somebody is paying 5 or 7 percent then you get into the 6 percent slab. A very large number of items which are of the common man user – food items in particular will continue to remain in the zero rated category.

Why we have consciously fixed despite some ill-informed comments two standard rates of 12 and 18 percent is, assuming somebody is today paying 10 percent, now it is possible to fit him into the 12 percent category. It is possible to fix somebody paying 13-14 percent into the 12 percent category. However if from 10 percent we had suddenly taken him to 18 percent, I think that would have been a shock as far as those commodities are concerned. One of the objects is not to increase inflation, there should not be tax on tax, therefore the actual eventual amount the consumer is paying must come down. Keeping those facts in mind, I think this exercise will be repeated. The only case will be that those who go into the higher slab, that is the 28 percent category, if you total the number of taxes that some of those commodities are paying, they are today at 31-32 percent. So, they will be brought down to 28 percent level. Many of them are no longer – they are technically considered luxury items but are now being used even by the average person which would include the lower middle class. Now do you put television in a very high category or even a refrigerator in a very high category because that impact is increasing? So, we will have to take a discretion with regards to those as to in which category we fit them, that is the exercise.

Q: One of the other clarifications perhaps that industry would look forward to is what happens to things like area based exemptions? Under the GST regime you don’t want to have a situation where there are exemptions, in fact you don’t want any exemptions at all. I understand that this is going to be something that state governments will have to take a call on. What is the road forward as far as area based exemptions are concerned?

A: If you want the benefit of all the input credits etc, in most of those cases, I am not making an announcement but as a general principle subject to some just exceptions, taxes will have to be paid along with the provision for an immediate refund. That is how the entire credit chain can be maintained. That is one of the proposals which has been considered by the council and which is now before the council.

Q: Let me then ask you about the other issue that requires government intervention and that is what the government intends to do as far as the NPA situation is concerned. The big worry and the big concern at this point in time is that the banking sector is constrained because of NPAs which to a large extent is of course a legacy issue. However there was a meeting that was held recently, I understand that about the top 50 NPA accounts have been identified, what is the road ahead as far as dealing with the NPA situation is concerned?

A: The amounts are large but the amounts are restricted. It is not that hundreds and thousands of businesses have created this problem. The problem of big NPAs is confined to essentially 30-50 companies. Therefore those 30-50 accounts need to be resolved. Now in way of the resolution several issues come up – you have to find a buyer, you have to find a strategic partner and therefore find a solution and if people are slow at doing so, thinking that the system is somewhat helpless, then the system will have to bring in other instruments which are available before it.

Q: What instruments?

A: I think you wait for a few hours or few days.

Q: For a few hours? Is there a announcement coming on NPAs in a few hours?

A: Not in a few hours but wait for the next couple of days. There is some policy decision between the RBI and the government which we have taken, which we will implement, which will certainly have to put the adequate pressure on people to settle.

If you look at the whole structure, there are enough instruments available for settlement as far as the banking system is concerned – the RBI circulars. You have different legislations where action can be taken.

Q: So, is this extending the scope of the oversight committee – the S4A route etc has already been available for the RBI.

A: I think you wait, you probably may have to go beyond that.

Q: It is not a bad bank or a super ARC that we are talking about?

A: I will keep you guessing.

Q: Let me then ask you about the state of the economy and what can we now expect in terms of the next big trigger? Of course July 1 as and when it happens the GST will be one of the big economic triggers but what else?

A: I think the GST is a big trigger and then collectively between the centre and the states, I think whatever are our programmes in the pipeline, particularly infrastructure and rural centric programmes, the next one or two years we have to go and implement them in a big way.

I think there are enough funds available within the system of the central and the state governments and I think this is the right time for governments now to spend.

Q: Is the universal basic income scheme possibility? Has that now moved beyond the realm of just being an idea which was floated in the economic survey by the chief economic advisor? Does it have legs to it?

A: I think the economic survey always gives freedom to the chief economic advisor and his colleagues to float good ideas. Last year if you recollect one of the most significant parts of the economic survey was, what are the manners in which we are subsidising the rich? So, we come out with this populist schemes and eventually a large number of those schemes help not only those where they are targeted but you end up helping the rich. I think Arvind Subramanian flagged that big issue.

Q: He also flagged a bad bank.

A: That is an idea of a public sector agency that he has floated. I will deal with that separately since you have repeatedly asked that question. As far as universal basic income scheme is concerned, it is an idea which he has floated and even before he floated it, it got marginally reflected in the Budget speech of one of the state budgets – Jammu and Kashmir Budget of all the states. The Finance Minister of J&K referred to it. The whole idea is that if a certain number of subsidies which the central government gives to a given state can be substituted and added to a certain number of subsidies that the state government gives and both these collectively form a corpus and this corpus becomes the basic income which is ensured to the below poverty line category in that state. So, a family lets us say receives a cheque of Rs 80000 or Rs 1 lakh in a year, if there was a substitution of some of these subsidies which are totalled up and removed. Now I think if it can be implemented, I have always considered it a very good idea and therefore, I am very supportive of the suggestion that this issue has been flagged. But before this good idea is damaged in any way, everybody should seriously in the states discuss this because Indian politics is capable of coming to a conclusion, let the existing subsidies continue and let UBI be over and above that which means all state and central governments become bankrupt which obviously cannot be the objective. So, it has to be in substitution.

Now, any state government which is willing to take that chance has the option of considering a pilot project. In fact, the Jammu and Kashmir Finance Minister has come and even made a presentation to me as to how the figures can add up. At first sight, it looks very attractive, but I think it has to be examined in detail.

Q: I did an interview with Uday Kotak yesterday and Mr Kotak seemed to suggest that the government needs to give a signal to the private sector that the private sector should be willing to undertake risks and do business openly and fearlessly and unleash the animal spirits. And I asked him repeatedly what signal do you want from the government and he just said we need a signal from the government to unleash the animal spirits. You are talking to CEOs of India Inc today. What is the message that you would like to leave them with?

A: I think the private sector needs to give a signal to itself. As far as the government is concerned, the government has given more than the signals which are required. Ordinarily in an economy which is a market centric economy, it is the private sector which leads the way and the government which follows. When there are challenges, public spending and government policies have to take over. We have not gone back ever on that responsibility and therefore, the series of steps, one after the other which have been taken in the last 32-33 odd months has actually been in the last few decades unprecedented. It is probably after the 1991, the few months of 1991, these are the series of steps which have been taken.

So, has the government been proactive? The answer is yes. Has the government hiked up its spending? The answer is yes. Has the government\'s policies been business friendly? The answer is yes. And yet, if somebody says give me more signals, then I think they need to restudy what is happening.

Q: Around the Budget time, you get a long list from industry on what exemptions they would like and what they would like the government to do. What is your ask of industry today when they are all listening to you? You have a captive audience.

A: Indian industry has a great sense of entrepreneurship and I think, Indian industry conventionally, even when the going was not so good, has delivered in the past. Now, at the moment, it faces a unique challenge and that unique challenge is that during that boom period, 2003-2008, they expanded and since then, the global economy has been facing challenges, domestic challenges have been there. But at the same time, one of the strengths of India has been that many an occasions when challenges have been faced by the rest of the world, we have managed to defy them.

Therefore, that is one of the few reasons why 2008 did not hit us so badly or the East-Asian crisis did not hit us so badly or for that matter, the slowdown in the last 2-3 years, we have managed to somewhat escape out of it. And I think India\'s sense of resilience is hugely on account of this sense of entrepreneurship. Now, I can quite understand the problem, the demand issues, issues relating to particular sectors which, each one of them, we have been trying to address and I think the Indian industry has to carry on and they know what to do.

Q: As Finance Minister, do you feel more confident in 2017 than you did in 2016?

A: I will tell you, one reason that gives me a positive feeling, in brief, is that India as a country has become far more aspirational and the consequential impact is never in Indian history in the past has decision-making been as easier as it is today. It is not merely because of the parliamentary figure. It is also because the country is so aspirational that people by and large, stand behind bold moves. We have seen that amongst the large number of steps which we have taken.

Now, there will be a restlessness as to why does GST not come fast, there will be a restlessness as to why we should be slow on any form of investment, why is infrastructure building a little slow. There will be restlessness because of this which I think is a very positive sign as far as India is concerned. Therefore, each year that passes by is going to make every Indian, not only me, happier than we were in the previous year.