More financial scams in the offing, says West Bengal FM Amit Mitra

West Bengal Finance Minister Amit Mitra has termed the rising non-performing assets (NPAs) in the economy as a “serious crisis”.  

“Macroeconomic scenario of the banking sector is in serious crisis. With the NPA climbing systematically from March 2014 to March 2018, the scams were in the offing,” Mitra said, while addressing the Banking Conclave organised by the Indian Chamber of Commerce in Kolkata on Friday.

Mitra warned of more financial scams in the country as NPAs of banks are steadily on the rise.

NPAs in the banking sector went up to around Rs 10.25 trillion at the end of March 2018 against Rs 2.04 trillion at the end of March 2014, said Mitra.

He also said credit availability to micro, small and medium enterprises have been getting “squeezed” as many public sector banks (PSBs) have restrained from lending, given they are under the RBI’s (Reserve Bank of India) prompt corrective action (PCA).    
 

At present, about 11 PSBs are under prompt corrective action by the RBI, which has restrained their risk-weighted lending.  

“Lending to MSMEs is getting squeezed as half of the PSBs are under PCA though small, medium enterprises are providing employment,” Mitra said. Speaking on the sidelines of the conference, Soumya Kanti Ghosh, group chief economic adviser, State Bank of India, said Indian banking sector was expected to see substantial write backs by the end of this financial year on account of resolution of stressed assets.  

In June 2017, RBI had identified 12 stressed accounts under Insolvency and Bankruptcy Code (IBC), which accounted for 25 per cent of total NPAs. In August, RBI had sent a list of 28 more firms to lenders for resolution under IBC. In the first list of the biggest NPAs in the banking industry, only the resolution of one account —Bhushan Steel — has yielded about Rs 352 billion to the banking sector so far. 

According to Ghosh, as on June 30 this year, 32 accounts have been resolved under IBC, the liquidation value of which is Rs 210 billion. The total resolution value is about Rs 500 billion, which is 238 per cent of the liquidation value, said Ghosh. The admitted claims were close Rs 900 billion. Hence, the resolution value is about 55 per cent of admitted claims.

“The Insolvency and Bankruptcy code is the most important banking sector reform in independent India. Resolution is happening under IBC, even though at a slower pace,” said Ghosh. 

On the rapid depreciation of rupee, Ghosh said rupee depreciation should be orderly and not abrupt, as it adds to the volatility in the market. “The rupee has remained remarkably stable over the last 3-4 years.  What is important now is that the depreciation should be orderly. Otherwise, it adds to volatility in the market.” 

State Bank of India expects Q1 GDP (gross domestic product) growth at around 7.7 per cent, and 7.5 per cent for the full year, according to Ghosh.