Lok Sabha Question No. 1817 (UNSTARRED), answered on 2018-07-27
Subject: Financial Stability Report
Ministry: FINANCE
Asked by: C. N. JAYADEVAN, PANKAJ CHOWDHARY, JYOTIRADITYA MADHAVRAO SCINDIA, KAMAL NATH

1817:

SHRI C.N. JAYADEVAN: SHRI JYOTIRADITYA  M. SCINDIA:

SHRI  PANKAJ  CHAUDHARY: SHRI  KAMAL  NATH:

Will  the Minister  of FINANCE  be pleased to state:

- (a) whether  Reserve  Bank  of India (RBI) in its Financial  Stability Report  has warned  that  the gross Non-Performing  Assets (NPAs)  of banks  are likely  to rise from 15.6 per cent as on March  2018 to 16.3 per cent as on March  2019 under the current  macro-economic  scenario,  if so, the details thereof  and the reaction  of the Government  thereto;
- (b) whether  on the basis of such report  of the RBI, the Government  has taken  any  steps to bring down/check  NPAs  of banks,  if so, the details  thereof  along  the number  of Public  Sector  Banks (PSBs) included  in the list  of monitoring  mechanism  of the RBI due to NPAs;
- (c) whether   the  Government   propose   to  issue  a  white   paper   on  the  economic   situation   in  the country,  if so, the details  thereof,  if not,  the reasons  therefor;
- (d) whether  the Government  has prepared/proposes  to prepare  a roadmap  to bring  PSBs out of the crisis  of NPA,  if so, the details  thereof;  and
- (e) the measures  being  taken  to prevent  further  deterioration of the banks  and the shift of customers from banks  to other  Non-banking  financial  institution  (NBFCs)?

## ANSWER

## (SHRI SHIV PRATAP  SHUKLA)

## To be answered by THE MINISTER  OF STATE  IN THE MINISTRY  OF FINANCE

- (a):  As per RBI's Financial  Stability  Report  (FSR) of June  2018, gross NPAs  of scheduled  commercial banks (SCBs) are stated to be at 11.6% in March 2018. According  to FSR,  the baseline  scenario  for stress  testing,   on  the  basis  of  regression   modelling,   indicates   12.2%  gross  NPA   level   for  SCBs  in March 2019.

In respect of the above regression  modelling  output,  it is pertinent  that  out of the existing  stock  of NPAs,  about  one-third  are currently undergoing  timebound  insolvency  resolution  process under the Insolvency   and  Bankruptcy Code,   2016,  in  the  National   Company Law  Tribunal   (NCLT)   and  as resolution  proceeds through  the current  financial  year  (FY),  NPAs  of banks  would  correspondingly reduce.  However,  since regression  modelling  is based on historical  rates and trends,  its output  does not  capture   impact   of  such  events  under way.   Further,   the  Revised   Framework for  Resolution   of Stressed  Assets  issued  in  February   2018  has  had  significant   NPA   impact   in  FY  2017-18,  which constitutes  the baseline  for FY 2018-19. Such baseline  effect is not captured  in modelling  and may elevate  modelling  output.

## GOVERNMENT  OF INDIA

## MINISTRY  OF FINANCE DEPARTMENT  OF FINANCIAL  SERVICES

## LOK SABHA UNSTARRED  QUESTION  NO: 1817 TO BE ANSWERED  ON THE 27 th  JULY,  2018/SHRAVANA 05, 1940 (SAKA)

## QUESTION FINANCIAL  STABILITY REPORT

(b) to (e): Government  has adopted  a comprehensive  approach  for addressing  NPAs  in the banking system  and improving  the condition  of banks.  The gross advances of Scheduled  Commercial  Banks increased  from Rs. 25,03,431  crore  as on 31.3.2008  to Rs. 68,75,748  crore  as on 31.3.2014,  as per the global  operations  data of the Reserve  Bank  of India (RBI). Asset Quality Review  (AQR)  carried  out in 2015  for  clean  and  fully   provisioned   bank   balance-sheets   revealed   high   incidence   of  NPAs.   PSBs initiated  cleaning  up and expected  losses on stressed loans,  not provided  for earlier  under flexibility given to restructured  loans,  were  reclassified  as NPAs  and provided  for. Such restructuring schemes have  been  discontinued   since.   Further,   upon, inter  alia, the  net  NPA   ratio   breaching   specified monitored   threshold,   RBI  placed  eleven   PSBs  under its  Prompt   Corrective   Action   framework, in order   to  restore   their   financial   health.   In  parallel,   to  strengthen   PSBs,  Government   began  their recapitalisation under  Indradhanush  plan  announced  in August  2015, which  envisaged  capital  infusion of Rs. 70,000 crore  by  the Government  over the four financial  years  and, to address the high  NPAs revealed   subsequently   by   AQR,   has  followed   this  up  with   the  announcement and  initiation of recapitalisation to  the  tune   of  Rs.  2,11,000 crore.  This  has been accompanied  with  a PSB Reforms Agenda for systemic  improvements  in banks.  Under  the PSBs Reforms  Agenda,  PSBs have created Stressed Asset Management  verticals  for stringent  recovery,  segregated  pre- and post-sanction  followup roles for clean and effective monitoring, initiated  creation  of online  one-time  settlement  platforms and committed  to monitoring  large-value  accounts  through  specialised  monitoring agencies. Further,  for creating  a clean  and effective  recovery  system,  Government  has enacted  the Insolvency and  Bankruptcy   Code,   amended   the  Securitisation   and  Reconstruction of  Financial   Assets  and Enforcement  of Securities  Interest  Act,  2002 (SARFAESI  Act) to make  it more  effective,  established six  new   Debts  Recovery   Tribunals   and  improved   the  recovery   systems   within   PSBs.  Further,   the Banking   Regulation   Act,   1949  has  been  amended,   to  provide   for  authorisation to  RBI  to  issue directions  to banks  to initiate  the insolvency  resolution  process under IBC. As per RBI's directions, cases have been filed under  IBC before the National  Company  Law  Tribunal  (NCLT)  in respect of 39 large  defaulters,  amounting  to about  Rs. 2.69 lakh  crore  funded  exposure (as  of December  2017). Thus, by recognising NPAs transparently, up-front provisioning, recapitalisation for bank strengthening,  reforms  for comprehensive  systemic  improvements  in banks,  and cleaning  up lending and recovery  systems,  Government  has put in place a clean  and robust banking system. As  regards   customer   base  of  banks,   the  same  is  reflected   in  their   account   base.  The   number   of deposit   accounts   of  scheduled   commercial   banks   has  registered   an  increase   of  26.9%  from   143.99 crore  in March  2015 to 182.67 crore  in March  2017. As regards  PSBs, for improving  their  customer attractiveness,  they  have taken  a number  of measures  under  the PSB Reforms  Agenda  for enhancing access and securing  service  excellence  in banking  services through  measures  such as digital  banking, near-home   banking,   customer   comfort,   ease  of  grievance   redressal,   senior-citizen   and  differentlyabled friendly  banking  services,  proactive  delivery  of credit  through  automated  processes. Government  presents  the Economic  Survey in Parliament every year  on the economic  situation.