New Delhi: The government is likely to push ahead with banking sector reforms alongside infusion of fresh capital in state-owned lenders in the new year as it looks to lift banks out of non-performing assets (NPA) crisis and revive lending growth from a 25-year low.

The government in October announced infusion of an unprecedented Rs2.11 trillion capital over two years in public sector banks that are reeling under high NPAs. Their NPAs have increased more than two-and-a-half times to Rs7.33 trillion as of June 2017, from Rs2.75 trillion in March 2015.

Of the Rs2.11 trillion package, Rs1.35 trillion would be infused through recapitalisation bonds. The finance ministry would soon announce contours of the recapitalisation bonds and the amount to be front loaded during the current fiscal. The capital infusion in banks is not going to be an easy affair as it has to be backed by string of reforms including strengthening of bank boards, resolution of non-performing assets and HR issues so that they do responsive and responsible banking in future.

“Reform agenda is the highest priority which has to be implemented along with capitalisation. A whole lot of reforms will come so that genuine borrowers don’t suffer and get hassle-free, need based credit," financial services secretary Rajiv Kumar told PTI. Special focus would be on micro, small and medium enterprises (MSME), financial inclusion and job creation, he said.

To facilitate consolidation in the public sector banking space, the cabinet in August gave in-principle approval for public sector banks (PSBs) to amalgamate through an alternative mechanism (AM). Subsequently last month, the panel under the chairmanship of finance and corporate affairs minister Arun Jaitley was set up to examine proposals from banks for in-principle approval to formulate schemes of amalgamation.

A report on the proposals cleared by it will be sent to the cabinet every three months. Two other members of the panel are railways and coal minister Piyush Goyal, and defence minister Nirmala Sitharaman.

As part of its resolve to bring down burgeoning NPAs, the government issued two ordinances—Banking Regulation (Amendment) Ordinance, 2017 and Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017—during the year.

The Banking Regulation (Amendment) Ordinance, 2017 gave way to the Act permitting the Reserve Bank of India (RBI) to direct any bank to initiate insolvency proceedings and give directions for resolution of stressed assets. The RBI’s internal advisory committee identified 12 large stressed cases worth over Rs5,000 crore, accounting to 25% (Rs1.75 trillion) of total gross non-performing assets, for proceedings under the insolvency and bankruptcy code.

Subsequently, the central bank advised banks to set aside 50% provisioning against secured exposure and 100% against unsecured exposure in all cases referred for bankruptcy. In a blow to defaulting promoters seeking to reclaim their firms that are under insolvency proceedings, the government last month promulgated an ordinance to bar wilful bank loan defaulters as well as those with NPA accounts from bidding in auctions being done to recover loans.

The ordinance, which is yet to be considered by Parliament, aimed at putting in place safeguards to prevent unscrupulous persons from misusing or vitiating the provisions of the Insolvency and Bankruptcy Code (IBC). The amendments would be applicable to cases where the resolutions are yet to be approved.

The changes essentially mean that certain promoters would not be allowed to bid for their own assets under the insolvency proceedings initiated to recover overdue loans. The RBI in its second list of big defaulters released in August asked banks to resolve 28 large accounts till 13 December or report them by 31 December to NCLT for insolvency proceedings.

Of these, banks are set to refer as many as 23 accounts for insolvency proceedings. These 28 accounts together account for 40% of bad loans or around Rs4 trillion. Some of the large accounts which are likely to go to the NCLT include Asian Color Coated Ispat, Castex Technologies, Coastal Projects, East Coast Energy, IVRCL, Orchid Pharma, SEL Manufacturing, Uttam Galva Metallic, Uttam Galva Steel, Visa Steel, Essar Projects, Jai Balaji Industries, Monnet Power, Nagarjuna Oil Refinery, Ruchi Soya Industries and Wind World India.

The other highlight of 2017 was the merger of five associates and the Bharatiya Mahila Bank with State Bank of India (SBI), catapulting the country’s largest lender to among the top 50 banks in the world.

With the merger, SBI joined the league of top 50 banks globally in terms of assets. The total customer base of the bank will reach 37 crore with a branch network of around 24,000 and nearly 59,000 ATMs across the country.

The merged entity began with deposit base of more than Rs26 trillion and advances level of Rs18.50 trillion. On the social sector, the Finance Ministry launched the Pradhan Mantri Vaya Vandana Yojana (PMVVY) to provide social security during old age and to protect elderly persons aged 60 and above against a future fall in their interest income due to uncertain market conditions. PTI

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