The steel industry, one of the top contributors to the banks’ non-performing assets, is slowly turning around and companies are beginning to pay interest dues to banks, Finance Minister Arun Jaitley said on Friday.
“Provisioning with regard to NPAs has been increasing,” Mr Jaitley told reporters following a quarterly review of public sector banks on Friday. “The major contributors continue to be the steel and infrastructure sectors. With regard to the steel companies, balance sheets have started turning and they have started paying interest. However, unless they pay the entire interest due, they cannot be reclassified.”
In the steel sector, the government introduced a minimum import price to protect domestic firms from a flood of cheap imports. In other sectors, like infrastructure construction, the government has tried to ensure at least partial payment to contractors even in the case of disputes. In addition to this, the Reserve Bank of India has provided banks with a number of tools to convert debt in stressed firms into equity, which can allow them to bring in new promoters.
“After the government implemented the Minimum Import Price for steel, imports have come down and demand has gone up as well, so it is positive for the industry,” D.R Dogra, who retired as the MD & CEO of Care Ratings had said. “It would be wrong to say the sector is out of the woods, but now some companies can at least service a portion of the interest.”
“The banks also express optimism regarding the infrastructure sector,” Mr. Jaitley said. “Highways picking up and the steps taken by the government in the construction sector would add a lot of liquidity to those accounts,” he said.
- Ravichandran, Senior Vice-President and Co-Head, Corporate Sector Rating, ICRA said: “A lot of steps have been taken in infrastructure at the regulatory level, For example, in construction, the move to release advances to the companies even during arbitration has helped a lot of companies.
“Lots of awards are happening on the roads front. In power, UDAY is helping the discoms. Even in ports, there are awards being given. Overall, sentiments have improved and this will be reflected in the debt servicing capabilities of these companies.”
Mr Jaitley said that while banks may prefer higher capital infusions from the government, there were budgetary constraints to be considered, and the banks themselves needed to take the initiative in trying to find buyers for their stressed assets.
“The banks did admit that they are finding it challenging to find alternative promoters and buyers to take over stressed assets,” Mr Jaitley said, adding that they needed to take a “greater initiative” in finding buyers.
The government had promised Rs.70,000 crore to recapitalise banks over a four-year period up to March 2019. Of this, Rs.25,000 was injected last year, and another Rs.22,900 crore has been committed this year. A Fitch report in July said that Indian banks would require as much as Rs 6 lakh crore to meet the Basel III requirements, 80 per cent of which would be needed by the public sector banks.
Regarding the MUDRA scheme, the Finance Minister said that Rs.86,000 crore has already been disbursed this year in relation to the target of Rs 1,80,000 crore. “Slow moving banks have been asked to rectify this and meet the target,” Mr Jaitley said.
Jaitley also said that though PSBs have been financially challenged, especially due to high NPAs, he hopes that they would soon recover to a situation where they could adequately transmit the interest rate cuts implemented by the central bank.
The Finance Minister also said that four PSBs were conducting investigations whether money in some of their Jan Dhan accounts had been deposited by the account holders or banking authorities so as to reduce the number of zero-balance accounts.
“In case of few accounts, this issue has arisen and there are names of four banks,” Mr Jaitley said.
“We have asked them. The banks are investigating….after that the banks will give their report to the Department of Financial Services.”
Despite resistance from the banking unions, Mr Jaitley said the government would go ahead with the merger of associate banks and Bharatiya Mahila Bank with the State Bank of India since the proposal had been approved by the Union Cabinet.
“All procedures will be followed. The government has already taken decision at the level of the Cabinet to fully support the proposal for the merger,” Mr Jaitley said.