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Finance Ministry may pitch for stricter norms for non-performing assets
May, 26th 2014

The banking division of the finance ministry is likely to pitch for stricter measures to deal with non-performing loans and suggest consolidation of public sector banks to create stronger lenders in its presentation to Narendra Modi, who is set to take over as prime minister on Monday.

"We will present all options which can be used to strengthen banks, including consolidation," said a finance ministry official, requesting anonymity. Cabinet secretary Ajit Seth had earlier asked all departments to prepare presentations to apprise Modi of their achievements and plans.

Another official said that the presentation will include a blueprint on the proposed banking captialisation programme, steps towards financial inclusion and measures that can be taken to arrest bad loans at staterun banks.

"Consolidation in PSBs can be looked at if there is a political will. We have to present all options," he added.

Finance Ministry may pitch for stricter norms for non-performing assetsThe ministry will also make a case for early release of Rs 8,000 crore as part of plans to infuse additional capital in the stateowned lenders. The 26 state-run banks will together need about Rs 4.15 lakh crore in capital infusion to be able to maintain lending growth under the Basel guidelines.

The government is unable to meet this demand because of its own weak fiscal position and has allocated just Rs 11,200 crore towards bank capitalisation in the current fiscal year, substantially lower than the amount infused in previous years.

"The banks have also presented various options to raise capital. All these measures will be a part of the presentation," the official said.

Some of these options include allowing banks to set up holding companies that will include all totheir subsidiaries. The holding company will raise money on behalf of these subsidiaries.

Other measures include focused special purpose vehicles (SPVs), such as the one Allahabad Bank has proposed, to monetise real estate assets and raising capital by allowing banks to issue shares to employees.

Some of these proposals are already being discussed with the Reserve Bank of India, the Securities and Exchange Board of India ( Sebi) and the Insurance Regulatory and Developmental Authority ( IRDA), said the official cited above.

The finance ministry has already directed banks to improve their CASA (current and savings accounts) ratio to up to 40% and focus on recoveries. Gross nonperforming assets (NPAs) of state-run banks improved to 4.44% in the quarter to March from 5.07% in the previous quarter.

"We will push for stricter measures which include attaching viable assets of promoters to recover loans," said the finance ministry official, signalling the continuation of the approach that founders be held accountable for the performance of companies they run.

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