The entire story around the increasing loan restructuring troubles of banks hit an official high on October 24th, 2017 when the Finance Minister issued a major recapitalization boost for public sector banks to the tune of ₹2.11 lakh crore while hinting for forthcoming banking reforms.
The message is clear, the government and RBI are clamping down on banks to recover a large section of the non-performing assets floating in the market.
Here’s a gist of what the Finance Minister, Mr. Arun Jaitely presented in front of an eager crowd.
- Reclassification of stressed assets has unearthed ‘hidden’ NPAs across banks.
- Post Asset Quality Review, the percentage of NPAs on the watchlist rose drastically.
The predicament has been initiated due to three problem points.
- Excessive and unchecked lending in the past.
- Unrecovered NPAs
- Increased provisioning to cover these NPAs and cut losses
In the duration from Mar-08 to Mar-14, lending has increased 14%-25% year on year. Stressed assets have grown to 11.9%.
High provisioning has pushed the NPA issue to this point where the government must intervene to stabilize the lending liquidity in public sector banks. Excessive provisioning has compounded the problem of NPAs.
The government is streamlining their systems to sustain the Basel III compliance of banks while they recapitalize their lending system, boost their asset quality. They have made the SARFAESI and DRT Acts more stringent to help banks and recovery agencies with settling NPAs. As was presented, 11 public sector banks have already signed an MoU towards streamlining their lending and cutting down on their NPA problem.
As on now, the government has checked all three boxes to revitalize the banking sector.
- Infuse Capital
- Initiate Banking Reforms
- Upgrade Recovery Laws
Together, the banks, the government, and expert recovery agencies can turn the tide around for the ailing lending system and revive the strained business ecosystem.
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