Finance Minister Piyush Goyal today promised all possible help to strengthen the 11 public sector banks placed under the 'Prompt Corrective Action' framework by the RBI to check their deteriorating financial health.
Under the PCA, banks face restrictions on distributing dividends and remitting profits. The owner may be asked to infuse capital into the lender. Besides, the lenders are stopped from expanding their branch networks and need to maintain higher provisions. Management compensation and directors' fees are also capped.
"Over the next few days we will ensure that the central government gives every possible support to further strengthen the resolve of these banks to come out of PCA framework as quickly as is possible," Goyal told reporters after the meeting.
The 11 banks under PCA are Dena Bank, Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce and Bank of Maharashtra.
Goyal said the meeting was "very useful" to understand what has transpired over the last 12-13 years in the banking system.
"...the 11 banks were represented at the highest level. Every one of the bankers spoke of solutions going beyond history...They are going to work through the day and meet me again late in the evening to prepare the action agenda on a case by case basis," he said.
Earlier in the day, Goyal said he would endeavour to quickly put on track the banking sector, which has been marred by scandals and bad debts that threaten to have repercussions for the broader economy.
"We will ensure very orderly growth of the industry and highest levels of probity and accountability that is expected of public sector banks," he said before meeting the bank heads.
Goyal, considered a close associate of Jaitley, has not made a big show of getting additional charge of the finance ministry and largely operates from Rail Bhawan.
Jaitley, he said, was "recovering very well".
"Yesterday I had an occasion to talk to him and take his guidance. He has given me some issues (which) I am following," he said.
Goyal, who is the minister of railways and coal, further said the priority is "to ensure that we can quickly get entire banking system on its feet and shed the legacy that was inherited by this government in 2014."
The legacy he referred to was apparently the indiscreet loans given under the previous UPA government. Many companies, especially in the power, steel and telecom sectors, have been unable to pay down their debts due to sectoral issues and slowing economy.
To compound the problem, there has been a string of scandals that have come to light over the past couple of months, hurting the image of banks -- the heart of the economy.
"With the intelligent efforts of all my colleague bankers, lakhs of employees of public sector banks and all the stakeholders of banking system working and under the guidance of RBI, we will ensure very orderly growth of the industry and highest levels of probity and accountability that is expected of public sector banks," Goyal said.
"I must place on record that we are very appreciative of the fact that finally the Reserve Bank of India, since Modi government came in, is ensuring proper banking supervision, is taking action against defaulters, something which I believe under previous governments was not given the kind of serious attention that it deserved," he said. "Indiscriminate lending of the past has caused this distress that the banking sector is facing."
Moody's Investor Service earlier this week said the final stage of a multi-year initiative by RBI to push banks to recognise problem assets more accurately will reduce profitability for the sector in the near term, but produce benefits over the longer term.
Although banks have recognised many loans as NPAs following an extensive inspection of loan books by the RBI in 2015, they still hold large volumes of restructured loans, a large share of which will become bad debt in the coming quarters.
Most of the existing restructured assets are legacy loans originated in 2009-12, largely to infrastructure-related sectors, such as construction and power.
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