NEW DELHI: In a move to help state-run banks clean up books, the government will encourage them to acquire assets of loan defaulters in steel, power and shipping sectors, and rope in state-run companies to manage them, finance minister Arun Jaitley has said.
“This will necessarily involve the banks invoking their powers under the contract, converting a part of the debt into equity, taking control of those units and appointing a management team of established people from either current or retired representative who have great experience of those sectors,” Jaitley said on Monday.
This will be an interim arrangement.
This is expected to speed up resolution of bad loans as state-run banks had not been acquiring assets from struggling companies and running or selling them to asset run companies for fear of scrutiny by vigilance agencies.
The decision was taken at a meeting held on Monday which was attended by top finance ministry officials and also officials from the prime minister’s office, which has been keen on more action on resolving bad loans that were seen to be holding back the economy.
Officials from steel, power and shipping ministry also attended the meeting.
“Chairperson of three important public sector companies – NTPC, Sail and Cochin Shipyard – were present in the meeting,” Jaitley said, adding that the idea is to involve the management team of certain established and successful public sector companies in certain sectors to operate at least at the interim in some of the plants.
The finance minister said the concerned secretaries have been asked to coordinate between the banks and concerned PSU heads. “I think they will start immediately. The banks will invoke their power and somebody has to come up. Today one of the legitimate problems is whenever some asset is put out there are no takers, so the takers will be created,” he said.
Jaitley said the government has already taken a series of steps in some cases where there are examples of some people exiting, in order to lower their debt and make it more sustainable. “The oversight committee is dealing with some cases which have now arisen on account of various steps that have been taken,” he said.
Oversight committee is a twomember team of former State Bank of India chairman Janki Ballabh and former chief vigilance commissioner Pradeep Kumar that banks can approach to settle their bad loans, a mechanism set up to comfort banks that they will not be hauled up later.
ET had reported earlier this month that the government was mulling a mechanism to solve the bad loans issue.
Banks Boards Bureau chief Vinod Rai had also told the Economic Times that little progress has been made on resolving bad loans as managements are reluctant to take hard decisions on recasting debt despite concerns that rising NPAs are holding back the economy.
Experts, however, said the idea to rope in state-run firms will only work if the turnaround is managed by specialised managers.
“The debt to equity conversion should happen at an appropriate valuation, reflecting the real current value of the stock,” said Jaijit Bhattacharya, partner — infrastructure and government services at KPMG in India. “It is important to have a tight management by the proposed PSU. In fact, the preferred option is to bring in specialised turnaround managers,” he said.
Gross non-performing assets of public sector banks surged to Rs 4.76 lakh crore in 2015-16 from Rs 2.67 lakh crore in the previous year. Most state-run lenders reported losses in the first quarter of this fiscal.