DNA Money Edit: Serious efforts to rein in bad loans deserve applause

The government’s battle against bad debt and corporate defaulters has gained momentum with the Cabinet approving a new framework for dealing with the ever-mounting non-performing assets (NPAs) in the banking system. The news of the arrest of two big defaulters – Vijay Mallya (Kingfisher) and Sanjay Jhunjhunwala (REI Agro) – has reinforced the resolve. As Arundhati Bhattacharya, SBI chairman, rightly pointed out, there is a positive turnaround in the nation’s bad loan mess.

Over several years, banks have piled up massive NPAs of Rs 6 lakh crore. There are growing concerns that the money lent by banks is not coming back, rendering banks helpless in disbursing credit and fostering an investment climate. The government is particularly concerned about a few sectors like power, steel and textile that account for about Rs 10 lakh crore of bank credit.

As corporate houses continue to face the slowdown in several sectors and slow pick-up in infrastructure sectors, the size of the NPA pie is unlikely to shrink.

The amendments will give the central bank an unambiguous mandate to intervene on behalf of state-owned banks while dealing with their toxic assets. The move to drive amendments to the Prevention of Corruption Act (PCA) to allow banks take commercially viable decisions without having to face a scrutiny later by probe agencies will surely help build confidence in the banking sector.