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'Govt geared to deal with NPAs in public sector banks'

Neena Haridas in New Delhi

There will be no privatisation and no disinvestment in the public sector banks. Finance minister Yashwant Sinha said this in the Upper House of the Parliament or Rajya Sabha.

Sinha intends to amend the Banking Nationalisation Act in order to maintain the public sector character of these banks, even while bringing the government shareholding in these banks to below 33 per cent.

"I will come before Parliament with our amendments to the Act and I will say in that Act clearly that the public sector nature of the banks will continue. Public sector nature of banks gives us certain powers. We will retain these powers because it will be through an Act of Parliament. Any other party will not strategically hold the rest of the share. It will be widely dispersed," Sinha clarified.

"We are not going to close down any bank, including the three weak banks," he said. The three weak banks facing huge problems are Indian Bank, United Bank of India, and the Uco Bank. The minister said that while the government was willing to reduce its shareholding in public sector banks to 33 per cent, the basic public sector character of these banks would not be compromised. He said that fresh issue equity would be issued to the general public, he said.

No single entity would be able to corner a major chunk of the shares, Sinha said. "There have been points made that we are privatising. It has been questioned how can we keep the public sector character of the banks by reducing our equity too less than 50 per cent. Let me clear this misunderstanding. There is no question of disinvestment. That is not our plan of action. It is not that we are saying we are holding some shares, we will go and sell them in the market. No. What we are saying is that earlier the then government thought of recapitalising the banks and we pumped in over Rs 200 billion to recapitalise these banks in 1993," he said.

"But we also amended the Banking Nationalisation Act to bring the equity, so far as the State Bank of India is concerned. Now there are many banks that are coming to us for recapitalisation. I have no hesitation is admitting that I am not in a position to give them any money today because I don't have the money to give. Then how do the banks recapitialise? They go to the market and recapitalise, they raise the money from the market. It is likely that our share holding in those banks might come down below 51 per cent. It will happen in the same way in which bank nationalisation took place."

The other issue for which the minister has been facing flak concerns the rising non-performing assets or NPAs of public sector banks. Sinha rushed to the defence on the topic and said, "For everything let us not blame IMF, the World Bank and the WTO." "I think it is time we got out of this narrow mindset. There is no reason for a country like India to be afraid or scared of any of these organisations. Let me make it clear that the NPAs are not the result of liberalisation policies. It is not because of liberalisation that suddenly we have Rs 580 billion of NPAs," said Sinha.

Sinha has been on the defensive ever since he placed Union Budget 2000-2001 before Parliament on February 29. On the one hand, there has been accusation that he has not taken enough hard decisions to put the fiscal deficit in order, while on the other he has been criticised for presenting a "retrograde" budget.

One such issue that the finance minister has been the weakening of banks and increase in the non-performing assets of nationalised banks. Said Sinha, "NPAs have been here earlier, too. What happened as a result of the liberalisation policies is that we became aware of this fact, and we are also well aware of the problems that will arise from a weak financial institution."

According to Sinha, the government plans to set up a financial reconstruction authority to deal with the NPAs in public sector banks.

"NPAs have to be tackled at all levels irrespective of the size of the loan. Nobody is condemning the public sector banks. Let us not believe that a whole lot of things are happening because we are trying to condemn the public sector banks for the NPA or for lack of efficiency. It is true that public sector banks started with large NPAs -- even in 1999 it was 15.9 per cent of their total advances. But let me give a comparative figure between public sector banks and private sector banks."

He said, "As on March 1999, public sector banks had 15.9 per cent of their total advances as NPAs, old private sector banks had 13 per cent. So it is not that private sector banks are very well run and they have no NPAs and what is worse is that these are increasing. It was only 10.7 per cent in 1997, but has gone up to 13 per cent now. New private sector banks today have 5.7 per cent of their total advances as NPAs, foreign banks 7 per cent. In all private sector banks, NPAs are going up. But in the public sector it has been coming down. I don't intend to conceal any figures -- but the fact is that NPAs both in gross and the net terms have been going down. In 1993-94, the gross NPAs were 24.78 per cent, which decreased to 15.89 per cent in 1998-99.

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