Interim finance minister Piyush Goyal on Friday said the primary reason for spurt in non-performing loans and stressed assets was the aggressive lending by banks during 2008-2014, when many projects were started that could either not be completed or had low capacity utilisation resulting in their inability to pay back their loans. Outstanding loans of public sector banks ballooned from Rs 18 lakh crore to Rs 52 lakh crore during this period, resulting in the creation of Rs 5.4 lakh crore of bad loans in 2014, said Goyal in his Budget 2019 speech.

Crediting the government for recognizing the NPA problem, Goyal went on to say this government put a stop to questionable practices of ‘phone banking’ and hiding of NPAs through restructuring and other methods, by asking the Reserve Bank of India to expose the stress in the system though an Asset Quality Review, or AQR.

He said the government has implemented a number of measures to ensure clean banking, and now the Insolvency and Bankruptcy Code (IBC) has institutionalised a resolution-friendly mechanism, which is helping in recovery of non-performing loans.

He said that while earlier, only small businessmen used to be under pressure of repayment of loans, while in the case of big businessmen, it was the headache of banks. But now, defaulting managements are either paying or exiting their businesses. An amount of close to Rs 3 lakh crore has already been recovered in favour of banks and creditors, Goyal said.

He said that the government has invested Rs 2.6 lakh crore into public sector banks via recapitalization, and announced the merger of banks to reap the benefits of economies of scale, improved access to capital and to cover a larger geographical spread.

Alluding to the recent exit of Bank of India, Oriental Bank of Commerce and Bank of Maharashtra from RBI’s Prompt Corrective Actions (PCA) regime, Goyal said more banks are likely to exit PCA in light of the improvement seen in PSBs financials in the past quarter.

First Published:Feb 1, 2019 2:05 PM IST