Even as the government scurries to tackle the problem of bad loans, Finance Minister Arun Jaitley stressed that reviving banking sector and investment in private sector top his priority list. The Reserve Bank of India (RBI) and banks are working on a list of defaulters and will put out the list soon, he said.
“My next big target is banks and private sector investment… that is the bull’s eye,” Jaitley told CNBC-TV18 in an exclusive interview. The list of companies to be selected in the first instance for invoking insolvency code is almost ready, he added. “RBI should put out the details soon.”
Last month, the RBI had said it would reconstitute and expand the oversight committee to deal with the menace of non-performing assets (NPAs). The central bank also outlined a plan of action for implementing banking ordinances to deal with the issue. Subsequently, President Pranab Mukherjee signed an ordinance amending the Banking Regulation Act to empower the RBI to direct banks to initiate proceedings for resolving and winding up pleas against defaulting companies under the Bankruptcy code.
State-owned banks are saddled with NPAs worth Rs 6 lakh crore. Adding other restructured assets, the total stressed assets in the banking system is pegged at Rs 8-9 lakh crore.
The Finance Minister also said that the government may look to consolidate some public sector banks. Jaitley said the ministry’s initial line of thought was to hold on consolidation till the sector’s health improves. The government is now “seriously” reviewing it, he said.
“As far as consolidation in some areas is concerned, it is in fairly advanced stages,” Jaitley said. The government has relooked at the banking system. There are some within the system which can be consolidated, he added.
Consolidation in some areas in financial services sector is in a “fairly advanced stage,” he further said.
The start of the fiscal year saw a big-ticket consolidation in the banking sector with State Bank of India merging its five associate banks and Bharatiya Mahila Bank. The mega-merger catapulted the state’s largest lender in to the league of top 50 banks globally.
Jaitley expressed concerns about the country’s telecom industry, but said he is sure that both the telecom ministry and regulator will act .
Intense tariff war and high taxes are expected to squeeze Indian telecom operators.
“I hope telecom is not the new steel,” Jaitley said, adding that the telecom regulator should ensure fair competition in the telecom sector. “Don’t want telecom balance sheets to turn into red,” Jaitley said.
Currently, banks’ lending to the telecom sector stands at around Rs 82,200 crore.
According to an India Ratings and Research report in February, “The industry has been going through a tumultuous period with the launch of services by Reliance Jio Infocomm. The industry has lost approximately 20 percent revenues due to free services by (Reliance Industries-owned)RJio… Credit profile is likely to weaken in FY18 with a fall in profits and a rise in debt, due to spectrum and network-related capex. Free cash flows will be negative due to the double whammy of weaker earnings and capex.”
“Stabilisation of the pricing would be the key driver to revise the sector outlook back to stable. Return of pricing power and/or substantially higher data volumes are critical to generate the desired return on large investments made into the sector. Clarity on the market share will also be a driver to reassess business profile of telcos,” it added.