New Delhi: Pay your dues to banks or allow somebody else to step in and take control of the business. This was the message Finance Minister Arun Jaitley conveyed today to businesses which have defaulted on loans. India’s banking system is reeling under bad loans estimated at more than $150 billion, bulk of which is accounted for by public sector banks. The government has taken many measures recently to tackle the bad loan issue, including empowering Reserve Bank of India to issue directions to banks to initiate insolvency resolution process against specific businesses.
“A very easy solution to suggest is tax payers must pay because the private sector has defaulted,” he said, adding bank recapitalisation, where the government puts in more capital in public sector banks to shore up their books, effectively amounted to that. “Therefore, I think let’s try and make the private sector pay for their debts or allow somebody else to step in,” he said. State-run banks account for bulk of the bad loans in the banking system. Mr Jaitley was speaking at an event in New Delhi.
Using the new bankruptcy law, the RBI has prodded banks to initiate insolvency proceedings against many corporate defaulters. “Through the bankruptcy law, I think this is the first time that debtors in India are being taken to task,” Mr Jaitley said.
Stating that results of the proceedings against major debtors would dictate how the banking situation improves, he said the process will take time. “You can’t have a surgical solution to this.”
The government, Mr Jaitley said, is open to putting more money into banks. In 2015, the government had announced a plan to infuse Rs. 70,000 crore in public sector banks over four years to reinforce their capital base. There is also a possibility of some banks raising resources from markets, he said.
Mr Jaitley also said that the government is also looking at consolidating public sector banks. “We are also at an active stage going for consolidation. We don’t need so many public sector banks. We need fewer but stronger banks,” he said.
Earlier this month, the government approved a proposal on Wednesday to set up a ministerial panel to speed up consolidation of state-run banks as part of its efforts to revive credit and economic growth. The government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in Asia’s third-biggest economy.
On interest rates, Mr Jaitley said every finance minister wants interest rates to go down. “That’s been constantly the desire of everyone. But then at the end of the day, the regime and the system we have is that the finance ministry or North Block does not have the last word in this. Therefore we will live with the regime that we have,” he said. The Reserve Bank sets benchmark borrowing and repurchase rates, which are used as a reference by banks to decide on interest rates. (With PTI Inputs)