No quick fix for banks

It would be interesting to see what suggestions the Union finance ministry comes up with to improve the health of the public sector banks (PSBs), as indicated by finance minister Arun Jaitley. He acknowledged that PSBs were grappling with “unacceptable” levels of non-performing assets. There is no quick fix; the problem involves `3.1 lakh crore as of September 2015 and constitutes 5.64 per cent of the PSBs’ advances. Even though banks have the authority to deal with wilful defaulters, the process is cumbersome; besides, the bankruptcy code is yet to be put in place.

This would enable a single bank to recover its share of the loan it had given as part of a consortium of lenders and enable banks to make the borrower exit his business. Whether this will help get the money back has to be seen. The government has taken various measures, one being to get road and power projects started (they account for huge NPAs) so they can begin earning revenue to service their loans. In the case of roads, for example, the PSBs are loggerheads with the transport minister as they refuse to fund road projects where the cost escalation is more than 20 per cent whilst costs have escalated more than 75-80 per cent in some cases. The ministry blames the banks for lending more than the project cost and road builders blame the government for delays. Even the money promised by the government for capitalisation of banks has yet to be given.

The main hope is that the economy recovers so that companies are able to service their debts and the payment cycle becomes more robust. This will be a long, painful wait.