Reiterating that the problem of bad loans in the banking system is not "insurmountable" for India, Finance Minister Arun Jaitley has said that a large economy like India can deal with this problem, as it is not a problem spread over hundreds or thousands of accounts but is confined to only 20 to 30 big accounts. However, he stated that the problem of Non-performing assets (NPAs) has just persisted too long and is certainly adversely impacting the banking system.
Jaitley stressed that at present, the resolution of NPAs is a top priority for the government as it will encourage private investments and in order to resolve the problem, some precipitative action will have to be taken and this may involve some hair cuts by the banks, which would be a bona fide commercial consideration. He also added that the defaulting companies will have to find partners and go in for either change of management or search of investors.
The Finance Minister blamed the anti-corruption laws of pre-liberalisation era as one of the constraints because of which banks are not able to take bold decisions. He pointed that one of the fundamental flaws in the law has been that erroneous decision-making, which may be taking haircuts to settle gets identified a corruption," and this has made the banking bureaucracy defensive in tackling the NPA. He also stated that parliamentary committee has approved changes to the law so that bureaucrats "can make decisions on commercial considerations than be constrained as to future consequences of the action itself."
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