NPAs resolution will remove constraints on growth: Official

New Delhi : Dispelling fears about the ongoing efforts to resolve the banks' non-performing assets (NPAs), or bad loans, issue constraining credit flow, the government on Friday said the process set in motion under the Insolvency and Bankruptcy Code (IBC) would, instead, help remove constraints on growth.

Responding to a query on the matter at the CNBC-TV18 India Business Leader Awards event here, Financial Services Secretary Rajiv Kumar said he did not consider the insolvency resolution process as constraining lending and it would open up growth opportunities for the economy.

"This is the year when we are expecting whole lot advantages in the banking sector, be it private, public, NBFC (non-banking finance companies), fintech, microfinance, whatever," he said. 

"I am not worried that (NPAs' resolution) would constrain lending. I see this as a clear opportunity in the coming year..the entire cleaning takes place, growth takes place and synergies take place in operation.

"The journey is heading toward pure and pur clean business. You recognise the NPAs transperantly, it increased by four to five lakh crore. You made provisioning to the tune of 4 lakh crore. 

"Banks absorbed these losses. Still, capital inadequacies came, which is why the government did the capitalisation twice. After doing that the government provided the NCLT (National Company Law Tribunal)," he added. 

Less than half of the staggering Rs 9 lakh crore worth of NPAs accumulated by banks had returned due to the system set in place by the IBC enacted in 2016, Corporate Affairs Secretary Injeti Srinivas said on Wednesday. 

Noting that the Reserve Bank of India (RBI) had referred 12 accounts, totalling about 25 per cent of the gross NPAs, for resolution under the IBC in June last year, he told reporters here a "good outcome" on half of these cases would help boost confidence in the system, a key component of which is the NCLT -- the final adjudicator.

"If you have 5-6 good outcomes, it will enhance confidence in the system, both domestically and among foreign investors," he said.

"Once these 12 get settled, the speed will go up," he said, noting that a second batch of 21 cases sent by the RBI to the Insolvency and Bankruptcy Board of India in January were taking time to come through the resolution process.

The government has embarked on a two-pronged strategy on bad loans.

On the one hand, it has brought in the IBC which provides for a six-month time-bound insolvency resolution process, extendable by another 90 days. On the other hand, it has approved a Rs 2.11 lakh crore recapitalisation plan for state-run banks.

Noting that the object of the exercise was not just loan recovery but to develop a robust market for stressed assets in India, Srinivas also said some of these were drawing good bidder interest for revival, particularly in the steel sector, where the favourable short-term outlook has helped "jack up" steel asset prices.