CII suggests points for addressing debt-burden on banks

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SME Times News Bureau | 05 May, 2014
In order to address the mounting Non-Performing Assets (NPAs) pressure on the health of the Indian banking system, the Confederation of Indian Industry (CII) has recommended a 5 point Action Plan to address the mounting problem of bad loans in the banking system for consideration by the government.

"The five-point action plan focuses upon: Revamping the Corporate Debt Restructuring (CDR) mechanism; creating a special resolution mechanism for the infrastructure sector; setting up a national asset management company; liberalizing norms to increase capitalization of asset reconstruction companies; and improving the effectiveness of the insolvency regime," CII said in a statement in New Delhi on Sunday.

The steep economic downturn, accompanied by high interest rates, has led to a sharp deterioration in asset quality for the banking sector and increased the pressure of Non-Performing Assets (NPAs).

"Owing to their impaired portfolios, the banks are hesitant to extend credit and this affects growth in the corporate sector. CII’s suggestions are keeping this reality in mind," said Chandrajit Banerjee, director general, CII.

The industry body said bad and restructured loans crossed 10 percent of all loans in mid-fiscal 2013-14 and are expected touch the 15 percent mark by the end of the financial year 2014-15.

Non-Performing Assets (NPAs) pressure on the health of the Indian banking system, CII has recommended a 5 point Action Plan to the Ministry of Finance and the Reserve Bank of India to deal with steep deterioration in asset quality and effect a turn around strategy for banks by releasing stress from their balance sheets.

Finance Minister P. Chidambaram had recently said that public sector banks are likely to post higher bad loans by the end of the just concluded fiscal year, while blaming large corporates for the state of affairs.

He said that during the April-December period, the banks had recovered Rs.18,933 crore, which is only about 20 percent of the total non-performing assets (NPAs) of about Rs.192,000 crore in the banking system.