The government is likely to push ahead with banking sector reforms alongside infusion of fresh capital in state-owned lenders in the New Year as it looks to lift banks out of NPA crisis and revive lending growth from a 25-year low.
The government in October announced infusion of an unprecedented Rs 2.11 lakh crore capital over two years in public sector banks that are reeling under high non-performing assets (NPAs).
Their NPAs have increased more than two-and-a- half times to Rs 7.33 lakh crore as of June 2017, from Rs 2.75 lakh crore in March 2015. Of the Rs 2.11 lakh crore package, Rs 1.35 lakh crore would be infused through recapitalisation bonds.
The Finance Ministry would soon announce contours of the recapitalisation bonds and the amount to be front loaded during the current fiscal.
The capital infusion in banks is not going to be an easy affair as it has to be backed by string of reforms including strengthening of bank boards, resolution of non-performing assets and HR issues so that they do responsive and responsible banking in future.
“Reform agenda is the highest priority which has to be implemented along with capitalisation. A whole lot of reforms will come so that genuine borrowers don’t suffer and get hassle-free, need based credit,” Financial Services Secretary Rajiv Kumar said.
Special focus would be on micro, small and medium enterprises (MSME), financial inclusion and job creation, he said.
To facilitate consolidation in the public sector banking space, the Cabinet in August gave in-principle approval for PSBs to amalgamate through an Alternative Mechanism (AM).
Subsequently last month, the panel under the chairmanship of Finance and Corporate Affairs Minister Arun Jaitley was set up to examine proposals from banks for in-principle approval to formulate schemes of amalgamation.
A report on the proposals cleared by it will be sent to the Cabinet every three months. Two other Members of the panel are Railways and Coal Minister Piyush Goyal, and Defence Minister Nirmala Sitharaman.
As part of its resolve to bring down burgeoning NPAs, the government issued two ordinances — Banking Regulation (Amendment) Ordinance, 2017 and Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 — during the year.
