Centre to handhold stressed industries

Tags: Banking

Bank recapitalisation, new licences likely soon

Rising non-performing as­­sets of Indian banks are a reflection of economic slo­w­down but not alarming, finance minister P Chida­mbaram said on Thursday. He said the government would work out a strategy to handhold stres­sed sec-tors to inject new mo­mentum into the economy.

After a nearly three-hour-long meeting with chief executives of state-run banks, Chidambaram also announced that the government would soon inject fresh capital into public sector banks.

The budget has provided Rs 15,000 crore for recapitalisation of state-owned banks this year. Last year the government invested Rs 20,000 crore as equity in these banks.

The government will also nudge the Reserve Bank of India to come out with guidelines for licences for new private banks and to begin accepting appli­cations for new licences pen­ding the passage of the ban­king laws amendments. The minister was confident that the bills would be passed in the budget session. “We have written to RBI and hope that it will pick up the thread and finalise the guidelines and start receiving the applications,” he said.

The ‘power or authority’ that RBI wants is already available under other provisions of the law, the central bank’s own regulations and guidelines for new banking licences.

The government would only formalise them through the amendments of the Banking Regulation Act, he said, adding that he had assured RBI that the Act would indeed be amended, “hopefully in the winter session, if not then in the budget session.”

If RBI received applications and processed them, even then the first banking licence was not likely in the next six or eight months, he said. By then, he said, the amendments would be in place.

On the rising non-performing assets (NPAs) of banks that touched 5.15 per cent in India’s largest lender State Bank of India, Chidambaram said, “A bit of handholding (is needed) to help the sectors or industries or units to tide over this difficult period… And when the economy recovers, these accounts will indeed become standard accounts.”

“If the economy improves and growth improves, the sectors (which are not doing well) will recover. But in the meanwhile, we will have to do some handholding and try to help these sectors recover,” he said.

“NPAs are a problem. That is a reflection of the slowdown in the economy,” he said. The government will take steps to improve sectors such as textiles, steel, infrastructure, construction and telecom infrastructure that are at the root of bad loans in public sector banks. “Just because an account has become an NPA does not mean it cannot be restructured. I think all the chairpersons are sensitive to this matter and am sure we will see through this difficult period.”

The Indian economy slowed to 6.5 per cent in 2011-12 and will possibly go down to 5.5 - 6 per cent growth this year. Public sector banks require an injection of Rs 90,000 crore in fresh capital to meet the Basel-111 norms.

The banks’ bad loans rose by 0.98 per cent over the 12-month period to the end of September. “Most banks will require additional capital. We will budget a provision for infusing additional capital and that decision will be taken in the next few weeks,” the minister said.

The top three banks that need additional capital are Indian Overseas Bank, Central Bank of India and Bank of Maharashtra. Shares of these banks rose between 1 per cent and 2 per cent on Thursday. Capital infusion in IOB alone is likely to be Rs 1,500 crore this year.

Chidambaram said all kisan credit cards would be converted into ATM cards and that the agricultural credit disbursal target of Rs 5,75,000 crore would be met. The target was Rs 4,75,000 crore last year.

A new draft of the credit guarantee scheme would be placed before the cabinet in the next 10 days, he said.

krsudhaman@mydigitalfc.com

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