Banks will get more teeth to recover bad loans: Jaitley

After two largest public sector banks SBI and Punjab National Bank’s profits sank to a record low due to bad loans, Finance Minister Arun Jaitley on Friday said the government will allow more powers to banks to recover non-performing assets.

The RBI has been asking for such powers for the public sector lenders for a long time. The government plans to make laws more stringent especially those dealing with suspected wilful defaulters . At present, the value of stressed assets in the banks is Rs 7.4 lakh crore, going by  RBI estimate that 10.9 per cent of all loans are stressed. This number is expected to swell to Rs 8 lakh crore by March.

“The bankruptcy law is under active consideration. The government is also considering further steps to empower banks to be in a position to recover these monies. I think it is a problem which will soon come under control," Jaitley told reporters.

Sources said the government is also planning an overhaul of debt recovery tribunals (DRTs) under the proposed bankruptcy code. They said, a new-look DRT is on cards which will work as debt recovery appellate tribunals. They will have powers to decide on insolvency applications, a function which is until now performed by district courts.

Besides, the government, in the forthcoming Budget, may also take steps towards tax deduction on provisioning of banks against doubtful debt recovery. This will encourage banks to tackle bad loans effectively. Provisioning is setting aside a portion of money by banks to tackle bad loans.

Jaitley admitted the banks were grappling with NPA problems but warned against exaggerating the  “volume and extent” of the problem as it leads to panic reaction.

Standard & Poor’s recently forecast stressed assets of Indian banks to grow 11-12 per cent of their gross advances in FY16.

On Thursday, RBI Governor Raghuram Rajan too flagged NPA concerns saying “deep surgery” was needed to clean up banks’ balancesheets.

On the capital requirement of PSU banks, Jaitley said, he was fully committed to it. The government, under the ‘Indradhanush’ plan has promised to give banks Rs 70,000 crore towards their recapitalisation in the next four years. Of this, Rs 20,000 crore has already been disbursed and another Rs 5,000 crore is on way.