Tackling bad loans first priority for PSBs: Rai

Bad loan recovery is absolutely on top of agenda so that lending process can start again, the Banks Board Bureau chief said

Giving primacy to the resolution of stressed assets, Banks Board Bureau (BBB) Chairman Vinod Rai on Thursday said the consolidation in public sector banks (PSBs) should follow steps to make lenders financially sound by tackling bad loans.

The gross bad debt of Indian banks touched almost Rs 6 lakh crore at the end of March 31. Of this, PSBs account for Rs 5.4 lakh crore. In percentage terms, the gross non-performing assets (NPAs) account for 7.6 per cent of the loan book at the end of March 2016, up from 5.1 per cent in September 2015, according to RBI data.

“Banks are engaged in resolution of their stressed assets. So, what we are proposing to do is, resolve that quickly first because we don’t want to saddle banks with greater issues,” Rai said after delivering the 22nd Lalit Doshi Memorial lecture here.

“Consolidation is not a small issue. It needs huge amount of human resource. So it will come by and by. Work is in progress. We will figure out methods (for consolidation) in due course of time. Bad loan recovery is absolutely on top of the agenda so that the lending process can start again,” Rai said.

The government in the Budget had said it will kick-off consolidation phase in the public sector banks and will dilute its share in IDBI Bank to below 50%. 

State Bank of India, country’s largest bank, is planning to consolidate its five associate banks with itself but the progress towards that have remained insipid. 

On query about idea of banks buying assets of defaulting companies if assets are not sold in time, he said this is one of the ideas being discussed to deal with stressed loans.

The Reserve Bank of India (RBI) has given the freedom to banks to take over a defaulting company by converting their debts into equity. However, the scheme, strategic debt restructuring, while invoked on a dozen companies have largely been a failure. Banks have not managed to find new buyers for the assets, prompting RBI to bring out another restructuring scheme that allows banks to recast loans looking into the future potential and cash flow generation capability of the project.

BBB has been formed to recommend persons for CEO and chairman's post at PSBs. Its mandate also covers recommending capital requirements of PSBs and their consolidation. 

Viond Rai, former CAG, delivered lecture "Effects of audit - Good Governance or Policy Paralysis.