Had guts to direct RBI to act on NPAs: Piyush Goyal

Interim finance minister Piyush Goyal in his budget speech on Friday said that the true picture of non-performing assets (NPAs) of banks emerged after the government told the Reserve Bank of India (RBI) to take stock of the situation through asset quality reviews and inspections.

“Our government had to guts to tell the RBI to look at all banks closely and present an accurate picture of NPAs,” he said, adding that questionable practices and the culture of “phone banking” (i.e. approving loans sans sufficient due diligence) was brought to a stop.

Goyal said it was the aggressive credit growth in 2008-2014 (the Congress-led United Progressive Alliance was in power till May 2014) that caused the rise in NPAs. “The period of 2008-14 will be remembered as a period of aggressive credit growth and, as per RBI, the primary reason for the spurt in non-performing loans and stressed assets,” Goyal said, adding outstanding loans of public sector banks (PSBs) ballooned from ₹18 lakh crore to ₹52 lakh crore during this period with stressed and non-performing assets (NPAs) amounting to ₹5.4 lakh crore in 2014.

The finance minister said since the implementation of the Insolvency and Bankruptcy Code, even big businessmen are under pressure to repay loans because of the strict consequences that the code stipulates. “An amount of close to ₹3 lakh crore has already been recovered in favour of banks and creditors,” Goyal said.

Goyal said that the government had invested ₹2.6 lakh crore towards recapitalising PSU banks, but did not say anything about further investments. “Amalgamation of banks has also been done to reap the benefits of economies of scale, improved access to capital and to cover a larger geographical spread,” he added.

Goyal also informed Parliament that prompt corrective action (PCA) restrictions on three PSBs—Bank of India, Bank of Maharashtra and Oriental Bank of Commerce—have been lifted. “I am fully confident that the other banks will also come out of PCA and return to lending soon,” he said.

The Nifty PSU Bank index fell in the latter half of trade on Friday, closing in the red, down 3.12% from the previous day’s close.