FinMin mulling innovative ways to deal with banks' NPA provision

The finance ministry is examining a proposal to find innovative ways for dealing with burden of NPA provisions by issuing provision shore-up certificates (PSC) to banks. With the help of this instrument, the operating profit of bank is saved from erosion and the lender would be able to focus on lending activities as being in financially good shape. Under this scheme, the bank concerned will get PSC to the extent of its provision against the bad loans and conserve its capital, sources said, adding that this capital can then be used for expanding core business of lending.

This is at the "idea stage" and various aspects of this model are being examined, sources said. This would be a kind of capital infusion not in one go but spread over various quarters. A special trust would take over the underlying provisioned assets for monitoring, recovery and unlocking value, using the Insolvency and Bankruptcy Code, they said. The instrument would be used only against NPAs and not for total provisions which also include those for employee benefit etc, sources added.

Besides, there is a fundamental difference between the proposal to set up a bad bank that takes over the entire stressed asset and the PSC mechanism. In the latter's case, the bank only assigns the stressed assets and will receive PSCs only to the extent of provisions made. The gross non-performing assets (NPAs) of all the banks rose to Rs 8,40,958 crore in December 2017, led by industry loans followed by services and agriculture sectors.

Gross NPAs of scheduled commercial banks as on December 31, 2017 due to loans to industry were at Rs 6,09,222 crore, accounting for 20.41 per cent of the gross advances. That was followed by Rs 1,10,520 crore (5.77 per cent) dues from services sector, Rs 69,600 crore (6.53 per cent) from agriculture and allied activities, Rs 14,986 crore from other non-food credit and Rs 36,630 crore (2.01 per cent) from retail loans.

The highest amount of gross NPAs was for country's largest lender SBI at Rs 2,01,560 crore. Among others, Punjab National Bank (PNB) was at Rs 55,200 crore, IDBI Bank Rs 44,542 crore, Bank of India Rs 43,474 crore, Bank of Baroda Rs 41,649 crore, Union Bank of India Rs 38,047 crore, Canara Bank Rs 37,794 crore and ICICI Bank Rs 33,849 crore.

Indian Overseas Bank bank had gross NPAs of Rs 31,724 crore, Central Bank of India Rs 32,491 crore, UCO Bank Rs 24,308 crore, Allahabad Bank Rs 23,120 crore, Andhra Bank Rs 21,599 crore and Corporation Bank Rs 21,818 crore.