Banks’ profits down due to provisioning for bad loans: Jaitley

New Delhi, Sep 16 (IANS) Indian state-run banks have collectively made an operating profit of nearly Rs 35,000 crore this fiscal, but the massive provisioning for bad debts has pared their net profit down to Rs 222 crore, Finance Minister Arun Jaitley said on Friday.

“PSBs (public sector banks) have collectively made an operating profit of Rs 34,967 crore this year, but after allowing for the provisioning for bad loans, among others, net operating profit works out to Rs 222 crore,” Jaitley told reporters following a performance review meeting here with heads of state-run banks and financial institutions.

Many state-run banks had reported huge losses for the first quarter ended June 30, owing to a sharp rise in provisioning for NPAs (Non Performing Assets) on account of an asset quality review ordered by the Reserve Bank of India (RBI).

In this connection, Jaitley pointed to the steel and infrastructure as the main sectors that provoked the asset quality review.

“The major contributors to the banks’ situation have been the steel and the infrastructure sectors,” the minister said.

“However, with the imposition of the MIP (minimum import price – to check cheap imports) the big steel companies’ balance sheets have started turning,” he added.

Noting that many of these long-troubled companies, have started paying the interest on their borrowings, Jaitley said: “Till the interest dues are paid, the asset (loan) is considered non-performing and deemed as such in the bank books.”

Jaitley held a quarterly performance review meeting with the Chief Executive Officers and Managing Directors of PSBs and financial institutions here.

“The Finance Minister will review the progress of credit and growth and asset quality especially with regard to priority sectors lending including credit flow to agriculture, insurance sector, micro and small enterprises (MSE), minorities, SC and ST, education and housing loan among others,” a ministry statement said on Thursday.

“The issues relating to financial inclusion and literacy as well as non performing assets, or banks’ bad loans, are also likely to be discussed at the meeting,” it added.

The government last month announced infusion of Rs 22,915 crore capital for 13 PSBs, as part of the first tranche of capital infusion for the current fiscal.

Noting that the highway sector had picked up, while recent measures announced for the construction sector will add liquidity to these stressed accounts, Jaitley said.

Late last month, the government approved new norms for the construction sector to ensure quicker resolution of disputes, kick-start stalled projects and make access to financing easier.

Among the measures approved are release of 75 per cent of money earmarked for infrastructure companies towards completion of existing projects and coverage of disputes between companies and civic bodies under a new arbitration law. The 75 per cent of the arbitral award amount owed by government agencies will be deposited into an escrow account, which can be used to repay bank loans or to meet commitments in ongoing projects.

“The broad picture is that PSBs still face the challenge of high NPAs. Detailed discussions have taken place in this regard, while the new RBI norms and changes in legislation like the new Bankruptcy Code and the DRT (Debt Recovery Tribunal) law have helped to empower the banks,” Jaitley said.

He described the NPAs situation as being “not static or permanent”.

“There has been a lot of provisioning on account of NPAs. With an uptick in the sectors a large part of these would become de-provisioned and the accounts themselves would get upgraded,” he added.

The minister also said the Department of Financial Services and the RBI would prepare a policy on how to deal with those companies which have got a lot of stressed assets in the real estate sector.

The review meeting would be continuing for the rest of the day, Jaitley said.

–IANS

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