India’s finance ministry claims that state-owned banks will recover 20% of their bad loans this year
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- The government said that public-sector
bankswould resolve around ₹1.8 trillion worth of bad loansin the current financial year.
- While a number of large accounts are expected to be resolved under the bankruptcy code, the Indian government will also set up an online auction portal to facilitate the speedy sale of seized assets.
- The representatives of the public-sector banks also asked the government to ease the restrictions that had been placed on their operations under the RBI’s Prompt Corrective Action framework.
India’s public-sector banks had their annual performance review with the Ministry of Finance yesterday. From the point of view of the Indian government, the outcome was clear. To reassure the public and instill confidence in markets, which have taken a beating in the last week amid fears that IL&FS, the country’s largest infrastructure lender, is on the brink of defaulting on its debts.
Hence, a number of positive announcements were made. The government said that public-sector banks would resolve around ₹1.8 trillion worth of bad loans in the current financial year, which equates to 20% of their total bad loans of ₹9 trillion. This is more than twice the amount of recoveries that took place in 2017-18.
How do they plan to do this?
While a number of large accounts are expected to be resolved under the Insolvency and Bankruptcy Code (IBC) as a result of a deadline from the Reserve Bank of India (
The finance ministry has also asked banks to make preparations to sell their non-core assets. Around ₹180 billion worth of non-core assets are expected to be monetised next year as public-sector banks look to regain capital strength.
Public-sector banks have made considerable progress in the year so far. In the April-June quarter, recoveries amounted to ₹365.5 billion, nearly a 50% jump from the first quarter of the previous year, according to data from the finance ministry.
In a press conference with reporters after the performance review, Finance Minister
A relaxation of restrictions
The representatives of the public-sector banks also asked the government to ease the restrictions that had been placed on their operations owing to their poor performance. Eleven banks that have been on the RBI’s Prompt Corrective Action (
The PCA framework imposes lending, provisioning and expansion restrictions on the banks. The banks have asked the government to lower the provision coverage ratio, which measures the ratio of provisions for non-performing assets, from the current level of 60% in order to free up capital.