The Prime Minister's Office (PMO) has sought details from the ministry of finance on actions taken against the government banks' non-performing assets in the last five years.
Also, the PMO has also demanded an explanation under which the bad debts in the banking industry was allowed to grow to about Rs two lakh crore. Among the plans in the offing to bail out ailing PSU banks are recapitalisation and also exploring the capital markets.
A source close to the development told dna, "NPAs formed one of the key talking points in the meeting of the prime minister with the secretaries of various ministries he held earlier this month. The
two things that the PMO has desired to know are action taken in the last five years on the bad debt front and the reason for the bulge." Economic affairs secretary Arvind Mayaram has been asked to
revert with details.
According to senior finance ministry officials top on the agenda was a quick recapitalisation drive and granting of functional freedom to bank chairmen. However, for the government, which is struggling on the fiscal deficit and growth front, recapitalising the banks will be easier said than done owing to the paucity of funds. The government has to infuse capital in shares to shore up Tier-I capital as per the Basel III norms. No longer can it issue bonds, which were self-funding in nature where banks themselves subscribed to bonds issued by the government for Tier-I capital.
Given the adopted policy of bringing fiscal deficit to 3% of the GDP, this massive capitalisation requiring almost 2% of the GDP will be a herculean task for sure. The other option that is actively being considered is the setting up of National Asset management Company to take over the bad loans off the balance sheet.