Finance Minister Arun Jaitley on Tuesday cleared the air over the allegation of loan waiver to big NPA defaulters, indirectly attacking the previous UPA regime of relaxing norms for defaulted firms between 2008 and 2014. He said the present government had not waived off any loans of big NPA defaulters, and that "rumour mongers" should know that the previous government - rather than taking firm decision against debtors - had relaxed the loan classification norms to keep defaulters as non-NPA account holders.
In a blog post on Tuesday, Jaitley said a rumour was being propagated about the waiver of loans of capitalists by banks. "They should also be asked that when these debtors delayed repayment of their loans and interest thereon to Public Sector Banks, what decision was taken by the then government," the finance minister asked, adding that rather than taking firm decision against debtors, the then government relaxed the loan classification norms.
The finance minister also stressed the new Insolvency and Bankruptcy Code would help in addressing cases against such defaulters. "Insolvency and Bankruptcy Code was enacted, and by amending it, in respect of companies whose money was not returned to the banks, a decision was taken that the debtors concerned would not be allowed to participate in the business of such companies," he wrote. The Finance Minister said on the contrary, under the bankruptcy code, cases had been instituted for timebound recovery from 12 largest defaulters in six to nine months in NPA cases of Rs 1,75,000 crore.
The government in 2015 had conducted the asset quality review (AQR) for clean and fully provisioned balance-sheets. The AQR revealed the loans of about Rs 4,54,466 crore, which were actually fit to be NPA, were recognised after intensive scrutiny under AQR, said the finance minister. It is the same time, he said, banks were given necessary capital so that Public Sector Banks could become strong and capable of contributing to the nation's development.
"The reason for giving capital to banks is that these banks may become mazboot, i.e., strong, rather than mazboor, i.e., hard-pressed. Public Sector Banks have been provided capital in the past as well. During 2010-11 to 2013-14 too, the government provided banks an amount of Rs 44,000 crore for recapitalisation. Was that also for waiving loans of capitalists?" he said. Citing integration of the State Bank of India, Jaitley said that the government policies had not only addressed the problems earlier perceived as legacy but also boosted the strength of Public Sector Banks. He assured honest businesspersons would be able to access loans from strong and reformed banks, and the strict law and the government's clean-up policy would result in a transparent system.
The Insolvency & Bankruptcy Code is likely to play an important role in addressing the non-performing assets (NPA) of the banking sector. The banking sector is facing issues due to the bad loans on its books, which have created a risk of capital erosion. NPAs have also constrained the banks' ability to lend. Credit is an important ingredient of economic growth and the lack of credit could lead to economic contraction. It's not just public sector banks that are staring a mountain of NPAs - private sector banks are also taking a hit.