Lok Sabha Question No. 3598 (UNSTARRED), answered on 2019-07-15
Subject: Disinvestment of Public Sector Banks
Ministry: FINANCE
Asked by: Mohammad Azam Khan

## GOVERNMENT  OF INDIA MINISTRY  OF FINANCE DEPARTMENT  OF FINANCIAL SERVICES

## LOK SABHA UNSTARRED QUESTION NO. †3598

TO BE ANSWERED  ON THE 15 TH  JULY  2019/ ASHADHA  24, 1941 (SAKA) Disinvestment  of Public Sector Banks

†3598.  SHRI  MOHAMMAD  AZAM  KHAN:

Will  the Minister  of FINANCE  be pleased to state:

- (a) whether   the  Government   proposes  to  disinvest   large   share  of  financially weak public  sector  banks;
- (b) if so, the details  thereof  and the reasons for disinvesting  the share of these banks  to the private  parties;
- (c) if  not,   whether   any   measure   is  under  consideration   of  the  Government   to strengthen  the condition  of financially weak  banks;  and
- (d) if  so,  the  details   thereof   along   with   the  reasons   for  weak   financial   condition   of these banks?

## ANSWER

## THE MINISTER  OF STATE  FOR  FINANCE (SHRI ANURAG  SINGH THAKUR)

- (a)  to  (d):  As  per  RBI  data  on  global   operations,   aggregate gross  advances   of  Public Sector Banks (PSBs) increased  from Rs. 18,19,074  crore  as on 31.3.2008  to Rs. 52,15,920 crore  as on 31.3.2014.  As per RBI inputs,  the primary  reasons for spurt  in stressed assets have  been  observed   to  be, inter-alia, aggressive   lending   practices,   wilful   default/loan frauds/corruption in some cases, and economic  slowdown.  Asset Quality  Review  (AQR) initiated   in  2015  for  clean   and  fully   provisioned   bank   balance-sheets   revealed   high incidence   of  Non-Performing   Assets  (NPAs).   As  a  result of  AQR   and  subsequent transparent   recognition   by   banks,   stressed  accounts   were   reclassified   as  NPAs   and expected  losses  on  stressed  loans,   not  provided   for  earlier   under flexibility given   to restructured  loans,  were  provided  for. Further,  all such schemes for restructuring stressed loans were  withdrawn. With  the recognition  of stress since 2015, the adverse impact  of the hidden  stress became manifest  as weakness  in financial  indicators  of PSBs.

To  strengthen   the  financial   position of  PSBs,  over  the  last  four  financial   years, Government  has invested  Rs. 2,45,997 crore  in PSBs as a part  of comprehensive  4R's strategy  that  comprises  recognising  NPAs  transparently, resolution  and recovering  value from  stressed  accounts   through   clean  and  effective   laws   and  processes,  recapitalising PSBs and reforming  banks   through   the  PSB  Reforms   Agenda.   Steps  taken   under this strategy  include, inter-alia , the following:

- (i) Change   in  credit   culture   was  effected,  with   the  Insolvency   and  Bankruptcy Code (IBC)  fundamentally changing   the  creditor-borrower relationship, taking away control   of  the  defaulting   company   from   promoters/owners and  debarring   wilful defaulters  from the resolution  process and debarring  them  from raising  funds from the market.
- (ii) Over the  last  four  financial   years,   PSBs  were   recapitalised   to  the  extent   of  Rs. 3,11,796 crore,  including  mobilisation of over Rs. 65,799 crore  by  PSBs themselves.
- a. Board-approved   Loan  Policies   of  PSBs  now   mandate   tying   up  necessary clearances/approvals and  linkages before  disbursement, scrutiny   of  group balance-sheet  and ring-fencing  of cash flows,  non-fund  and tail  risk  appraisal  in project  financing.
- (iii) Key reforms  were  instituted  in PSBs as part  of PSBs Reforms  Agenda,  including  the following:
- b. Use  of  third-party data  sources  for  comprehensive   due  diligence   across  data sources has been instituted,  thus mitigating  risk  on account  of misrepresentation and fraud.
- d. To ensure timely  and better  realisation  in one-time  settlements  (OTSs),  online end-to-end OTS platforms  have been set up.
- c. Monitoring   has  been  strictly   segregated   from   sanctioning   roles   in  high-value loans,   and  specialised   monitoring agencies  combining   financial   and  domain knowledge  have been deployed  for effective monitoring  of loans above Rs. 250 crore.

Positive  impact  on PSBs of Government's  4R's strategy  is now  visible  and includes, interalia¸ the following:

- (ii) Assets quality  has improved  as reflected  in 45% year-on-year  reduction  in slippage into  NPAs  in FY 2018-19, and 63% reduction  in 31 to 90 days  overdue  corporate accounts  by  March 2019 from  their  peak  in June 2017.
- (i) Record  recovery  of Rs. 3,16,479 crore  over the last four financial  years,  including record  recovery  of Rs 1,27,987 crore  in FY 2018-19, has been effected.
- (iii)With   stress  recognition   largely   completed,   significant   headway   in  recovery   and resolution  under IBC, and reduced  slippages  as a result of improved  underwriting and  monitoring,   gross  NPAs   of  PSBs  have  started   declining,   after  peaking in March 2018, registering  a decline  of Rs. 1,06,032 crore,  from  Rs. 8,95,601 crore  in March 2018 to  Rs. 7,89,569 crore  in March 2019.

Thus,  by  addressing  the underlying causes behind  the build-up  of stress in PSBs through comprehensive   reform   to  change   credit   culture   and  tighten   discipline   in  the  financial system,  institutionalising robust underwriting and monitoring, governance  reforms,  and leveraging  technology, PSBs have emerged  stronger.

Note: Figures cited above for PSBs include those for IDBI Bank Limited, which was recategorised as a private sector bank by RBI with effect from 21.1.2019