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Kolkata: A stage is now set for a jump in credit delivery by state-owned banks, which collectively control two-thirds of India’s financing market.
Banks have recovered about Rs 3 lakh crore of their sticky assets from defaulting promoters in recent years and the government has ended the `phone banking’ culture to make the system clean, finance minister Piyush Goyal told parliament during his budget speech.
The recoveries, coupled with fresh infusion of capital to the tune of Rs 2.6 lakh crore, have set the stage for a higher credit delivery by state-owned banks.
“We expect credit growth from some of the banks coming out of the PCA (prompt corrective action) framework and realisation of Rs 3 lakh crore of NPAs,” said Ranen Banerjee, partner at PwC India.
Reserve Bank of India (RBI) data showed annual bank loan growth at 14.5% at the end of January 4, largely contributed by private sector lenders.
The rise in bank’s non-performing assets and their persistent losses plagued credit growth until the September quarter.
The tide seems to be turning now with the arrest in fresh accumulation of bad loans.
“Earlier, only small businessmen used to be under pressure of repayment of loans while in the case of big businessmen, it was the headache of banks.
But now, defaulting managements are either paying or exiting their businesses,” Goyal said in his budget speech.
The finance minister said that the government stopped malpractices in lending and streamlined the approach of bad loan recognition and resolution.
During FY18, the gross non-performing assets ratio of state-owned banks arising from large accounts with loans more than Rs 5 crore grew to 23.1% from 18.1% in the previous year.
“Many projects were started that could either not be completed or had low capacity utilisation, resulting in their inability to pay back loans.
Many more were hidden through restructuring or otherwise which were discovered during asset quality reviews and inspections carried out since 2015,” he said.
Goyal said outstanding loans of public sector banks ballooned from Rs 18 lakh crore to Rs 52 lakh crore between 2008 and 2014.
“A number of measures have been implemented to ensure clean banking.
Through a transparent and accountable process, we recognised these NPAs,” Goyal said.
