Banking sector reforms could have come a little earlier: Arun Jaitley

Banking reforms in order to resolve the non-performing asset (NPA) crisis in the banking sector could have come a little earlier, Finance Minister Arun Jaitley has said. In an exclusive interview to News18 Network, Jaitley spoke how the Reserve Bank of India (RBI) and the government are taking efforts to clean the balance sheets of banks struggling with NPAs of over Rs 8.5 lakh crore.

In 2016, the government passed the Insolvency and Bankruptcy Code to tighten the grip on the defaulting promoters and giving more power to bankers to take decisive action.

On being asked if the reforms should have come earlier, Jaitley said: "Could have. Because we were making all honest efforts and so was RBI. They wanted to make sure through their various schemes, whether the restructuring etc could revive these companies, but it looked a little too late.”

Over the past two years, the central bank has come out with various NPA resolution mechanisms such as corporate debt restructuring (CDR), strategic debt restructuring (SDR), Scheme for Sustainable Structuring of Stressed Assets (S4A) and 5:25 refinancing scheme among others.

Most schemes have not helped banks in a big way given the over-leveraged corporates and weak economic climate leading to weak cash flows for most of the indebted firms.

The gross non-performing assets as a percent of loans have only increased from 9.6 per cent to 10.2 percent between March and September 2017.

With the help of the IBC, in 2017, bankers were forced by the RBI to take loan defaulters to courts. Weighed down by the heavy pile of stressed assets and the asset quality review that followed in December 2016 under the leadership of former RBI governor Raghuram Rajan, it became a mission for banks to clean up their balance sheets.

So far, in 2 lists, the banking regulator has asked banks to send nearly 40 NPA accounts with nearly 30 percent of the share of gross bad loans in the system for immediate bankruptcy proceedings. The first list had the lion share with 12 large corporate accounts worth 25 percent of the bad loans at around Rs 1.8 lakh crore.