Capital-depleting bad assets are the "core area of concern" and government "stands one" with the banking system in difficult times, Finance Minister Arun Jaitley said on Friday, promising expeditious help to strengthen it.
"The government certainly stands one with the banking system. Whatever steps that are required to be taken to find a resolution to this problem (of stressed assets), we will expeditiously work with India's banking system in order to strengthen it," he said.
The Centre is working towards strengthening its ability to support the banks through greater resource mobilisation, Jaitley said.
His comments at Indian Banks Association's annual general meeting (AGM) here came amidst increased speculation that the government is mulling increasing capital infusion in the 21 public sector banks (PSBs) which control over 70 percent of the system.
Banks are facing mounting non-performing assets (NPAs) or bad loans to the tune of Rs 8 lakh crore of which PSBs alone account for Rs 6 lakh crore. The bank NPAs are skirting the double digit mark at present and expected to grow further.
According to various analysts, the Rs 10,000 crore recapitalisation provision in the budget may not be sufficient for the banks, given multiple pressures on the buffers.
These emanate from the NPA resolution, where it has to set aside higher amounts as a growing number of chunky assets get resolved under the provisions of the newly-passed Insolvency and Bankruptcy Code (IBC).
Migration to the Basel-III global capital adequacy norms by 2018-19, which requires higher level of buffers, is also a worry, while some questions are also being raised about the impact of a change in the accounting system to IFRS from next fiscal.
With share prices of the banks being depressed due to high percentage of dud loans, there is a higher likelihood of the government investing itself in the PSU lenders.
"It has been a major challenge with regard to the increasing number of stressed assets. I think it is this which is really the core area of concern today," Jaitley said.
He said the government has been very supportive with interventions like promulgating the IBC, and amending or altering other provisions in statutes in consultation with the Reserve Bank.
On the IBC, where RBI has mandated banks to resolve 12 large accounts representing over a fifth of the total stock of NPAs, Jaitley said he expects some "early harvests" soon because of the institutional mechanisms being created.
He asked stakeholders to repose trust in the institutions being created, adding that speed is of essence while dealing with the stressed asset problem.
"Certain amount of trust in the decision-making institutions is essential."
Some entities have challenged the insolvency proceedings in courts, while there are also reports of the Insolvency Resolution Professionals being harassed.
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