Coherent policy responses should be formulated to empower the banking sector to overcome challenges, especially those arising out of the COVID-19 pandemic, says the parliamentary panel in its report tabled in the Lok Sabha.
The situation in the banking sector was no doubt grim. But the panel remains optimistic that as most of the large legacy bad loans get resolved, either through bankruptcy resolution process or outside it, the consequential recoveries will help the banks to shore up their balance sheets. The report said it is necessary and prudent that these large legacy non-performing assets (NPAs) are segregated for resolution and the balance sheet of banks sanitized, allowing them to move ahead with their regular business.
The Parliamentary Panel recommended the Reserve Bank of India (RBI) and the government to formulate coherent policy responses that will enable and empower the banks. “The committee would like to emphasize that the present crisis, which the committee believes is transient, should not become an alibi for privatization of public sector banks (PSBs).” The panel also highlighted that the financial health of state-run banks has improved significantly from the end of FY18. The gross NPAs have reduced from Rs 8.96 lakh crore in March 2018 to Rs 5.77 lakh crore in December 2020. A record recovery of Rs 2.27 lakh crore has been affected since March 2018 till March 2020.
The Standing Committee on Finance, chaired by BJP leader Jayant Sinha, acknowledged that the government has taken specific steps to revamp the banking system in the areas of loan monitoring, risk management, resolution and recovery of non-performing assets (NPAs), reforms in governance, marketing strategy and reach, among others. However, the report warned that the large legacy NPAs remaining unresolved or unsettled cannot be ignored.
The committee reiterated that large legacy loans or NPAs may be segregated for resolution, allowing banks to move ahead with their regular business without getting bogged or dragged down with legacy issues.