Govt to recapitalise PSBs; NPAs rise to Rs 7.33 lakh crore
Published: Oct 25, 2017
By TIOL News Service
NEW DELHI, OCT 25, 2017: Govt has decided to take a massive step to capitalise PSBs in a front-loaded manner, with a view to support credit growth and job creation. This entails mobilization of capital, with maximum allocation in the current year, to the tune of about Rs 2,11,000 crore over the next two years, through budgetary provisions of Rs. 18,139 crore, recapitalisation bonds to the tune of Rs. 1,35,000 crore, and the balance through raising of capital by banks from the market while diluting government equity (estimated potential Rs. 58,000 crore).
Government actions are not limited to addressing capitalisation of PSBs. Definite steps will be taken alongside capitalisation to enable them to play a major role in the financial system. PSBs having 70% market share in the banking space will be geared for greater growth and to contribute through enhanced credit off-take. The stage has been set with a ‘MUDRA Protsahan’ campaign across the country.
There will be a strong push on enabling growth of MSMEs through enhanced access to financing and markets, and a drive to finance MSMEs in 50 clusters. While Ministries concerned will spearhead and provide momentum, banks will undertake speedy processing of loan applications in a hassle-free manner. Fintech companies will be roped in to cut down the appraisal process and generate quality loan applications. MSMEs will be handheld by extending support through:
++ Compulsory TReDS (Trade Receivables electronic Discount System) registration by major PSUs within next 90 days, for shortening the cash cycle
++ Sector-specific Mudra financial products, such as Mudra Leather, Mudra Textiles, etc.
++ 100 bank-approved MSME project templates for speedier credit
++ Revamped udyamimitra.in portal, so that banks compete for financing MSME projects
++ Drive for registering MSMEs on the GeM (Government electronic Marketplace) portal and e-commerce platforms
It may be recalled that aggressive loaning to sectors with excess capacity and poor due diligence created large stressed assets, which grew to 11.9% by March 2014.
Asset Quality Review (AQR) carried out in 2015 for clean and fully provisioned bank balance-sheets revealed high incidence of NPAs. Expected losses on stressed loans, not provided for earlier under flexibility given to restructured loans, were reclassified as NPAs and provided for. PSBs initiated cleaning up by recognising NPAs and provided for expected losses.
Gross NPAs in PSBs rose rapidly from 2015, from 5.43% (Rs. 2,78,466 crore) in March 2015 to 13.69% (Rs. 7,33,137 crore) as of June 2017. Provisioning for expected losses grew substantially. From 2014-15 to 2017-18 Q1, Rs. 3,79,080 crore provisioning was made, whereas during the preceding ten years total provisioning was Rs. 1,96,937 crore only. This was the right approach to dealing with expected losses on account of stressed loans.
