Jaitley to meet banks' heads to review bad loans, rate cut

Union Finance Minister Arun Jaitley will meet heads of state-run banks on Monday to take stock of their distressed assets, or bad loans, as well as the situation following the Reserve Bank of India's latest lowering of interest rates in September, among other issues, an official source said.

The source told reporters here that the performance meeting of public sector banks (PSBs) will also review the state of the Indradhanush programme to revive PSBs.

Taking the first step towards a holding company structure for state-run banks, the government in August announced the setting up of a Banks Board Bureau (BBB) that will recommend appointment of directors in PSBs and advise on ways of raising funds and dealing with stressed assets.

The gross non-performing assets (NPAs) of PSBs rose to 6.03 percent at June-end, as against 5.20 percent in March 2015.

Jaitley has allocated Rs.7,940 crore in the budget for recapitalisation of PSBs during this financial year.

The union cabinet had in December allowed state-run banks to raise up to Rs.160,000 crore from the capital markets by diluting the government stake in phases to 52 percent.

Noting the massive stressed assets of the state-run banks, Prime Minister Narendra Modi had late last month said the government would infuse Rs.70,000 crore in the PSBs over the next few years.

Jaitley had said in this regard in September that the government might consider reducing its stake in PSBs to 52 percent.

The finance minister is also expected to review the interest rate cut by banks following reduction in the key policy rate by the Reserve Bank of India (RBI) in September.

The RBI cut the repo rate at which it lends to commercial banks by 50 basis points to 6.75 percent.

The finance ministry source said the meeting would also review the steps taken by PSBs to prevent future misdemeanours like the Rs.6,100 crore Bank of Baroda black money remittance case.

Minister of State for Finance Jayant Sinha said last month that in the light of the developments relating to Bank of Baroda, "banks were exhorted to have a system in place to prevent such incidents".