The government today said it has taken several initiatives such as identifying stressed assets and making provisions for them, as part of its efforts to clean up the banking system.
“The worst that way is over. NPAs [non-performing assets] recognised, provisions made, losses booked, capitalisation done, and it’s only the positive, clean lending which can take place now,” Rajiv Kumar, Secretary of the Department of Financial Services, told reporters.
Under the Enhanced Access and Service Excellence framework, banks have been asked to collect passport details of directors of companies having an exposure of over Rs 50 crore, refer cases to investigative agencies in case of any possible fraud and reduce the number of lenders in a consortium. “A number of other actions will be taken to enable “transparent and clean lending with responsive and responsible behaviour”, he said.
His comments came after the government directed respective bank boards to divest the executive powers of Usha Ananthasubramanian, current managing director and chief executive officer of Allahabad Bank and former MD and CEO of Punjab National Bank, as well as two PNB executive directors—KV Brahmaji Rao and Sanjiv Sharan. The Central Bureau of Investigation pressed charges against them earlier today in the Rs 13,000 crore fraud involving jeweller Nirav Modi.
The Finance Ministry will hold a review meeting on May 17 with banks that are under the Reserve Bank of India’s prompt corrective action framework, he said. The PCA framework places restrictions on dividends, branch expansion and, in some cases, lending for lenders with weak operational metrics.
“So, they [banks] will take measures to come out of it as soon as possible. The non-PCA banks have to lead growth. Loan demand is picking up, so they have to support economic activity,” Kumar said.
The RBI’s decision to bar Dena Bank from further lending is also part of its reform agenda, according to Kumar. “PCA or non-PCA is just a temporary phenomenon in terms of cleaning up the banking system, he said. “…if this much of cleaning up needs to take place, then you have to have a halt for some time.”
All non-PCA banks have to follow a differentiated banking strategy, shift their risk-weighted assets and maintain a common capital ratio, Kumar said. The government will give them regulatory capital but they have to manage within that, he added.