Finance Minister Arun Jaitley has said the government, faced with a “catch-22 situation” over the issue of non-performing assets, is working on a plan to rebuild the capacity of India’s banking sector so as to support growth.
Jaitley, who is on a week-long visit to the US to attend the annual meetings of the International Monetary Fund and the World Bank, also said that reforming the banking system is the top agenda of the government.
“Today, with global growth turning around, we are working to put up an actual plan in play to deal with the banking situation, which is top of our agenda. We need to rebuild the capacity (of the banking sector),” Jaitley told students of Harvard University in Boston.
“I inherited a banking system whose monies were lying in non-performing assets…are unable to service the debt. We are faced with a catch-22 situation as to how do we improve the capacity of the banks so that they can support growth,” he said.
So, all these factors together adversely impacted the private sector, the minister said.
Gross non-performing assets (NPA) of the public sector banks rose to Rs 6.41 lakh crore at the end of March 2017 as against Rs 5.02 lakh crore a year ago, according to Finance Ministry data.
Jaitley, however, also noted that bigger enterprises did not suffer, because they approached the bond market and foreign funding which were available at much cheaper rates.
They did not had to go to th Indian banks.
It is small and medium-sized enterprises that need the support of the banking system, Jaitley said, noting that SMEs are huge job creators.
“That’s where the problem really is as far as the private sector is concerned,” Jaitley said.
Responding to a question, Jaitley refuted the notion that private sector is not expanding.
Jaitley asserted that the expansion of the private sector was “limitless”.
“Expansion of private sector is taking place. The last quarter, which was otherwise not encouraging, indicated that the investment graph itself has turned positive. A lot of investment is taking place,” he said.
While India’s economy grew at a fast pace between 8 and 9 per cent, the private sector expanded limitlessly. This was accompanied by an immediate slowdown in the global economy as a result of which major segments of Indian economy got impacted — steel, infrastructure which was due to poor management, power mainly because of corruption, he said.