Need to empower banks to deal with non-performing assets: FM Arun Jaitley

MUMBAI: India needs to act as a “mature democracy” and not treat every case of loan default as being due to corruption, Finance Minister Arun Jaitley said. The right response to the problem of mounting non-performing assets (NPAs) is to empower and strengthen banks so that they are able to strike deals based on “banking considerations” to tackle the problem of bad debt, he said.
“India has to learn to be a mature democracy in its responses. And, therefore, when you have a sectoral slowdown which has impacted the health of banks, we must learn how to respond,” Jaitley said in an interview to ET. “The response has to be to empower the banks, to recapitalise the banks. And allow the banks freedom to take decisions on banking considerations.”



The reaction of the media, parliamentarians and courts ended up weakening banks, the finance minister said. “Some of us in our bonafide enthusiasm are doing exactly the opposite. The media will make a business loss look like a scam when it is not. MPs will demand ‘recall all loans’ not realising that economic activity will come to a standstill. And the courts will take over the management of NPAs. Now, as a result of these three factors, we bring unfair pressure on executives of banks who could otherwise enter into bonafide settlements based on banking considerations,” he said.

Full Interview: If legitimate money comes in, it increases size of economy, says Arun Jaitley

‘‘The NPA issue goes far beyond one delinquent defaulter,” Jaitley said. Setting up an ombudsman-like mechanism — to approve settlements between banks and stressed companies— was no palliative. “Ultimately, you have to learn to trust people,” he said. “Look at how the Americans handled the 2008 crisis. We must learn to trust some of our institutions to sort out these matters rather than everybody getting in to solve the banking problem.” Industrialists needed to get used to the fact that political connections would not work any longer in the banking system, the finance minister said.

Commenting on the reworking of the double-taxation treaty with Mauritius and the recent tightening of rules on participatory notes, Jaitley said these steps illustrated the strength of the Indian economy.

“Ultimately, at the end of the day, if all this (money) that is being recycled back into the economy through either Mauritius or through P-Notes, if those options are closed and this money has to surface as legitimate money, it increases the size of India’s economy and GDP,” the finance minister said.

India is in a vastly different place now that it was 25 years ago. “This whole idea (was there) that those who earn through these investments must not pay taxes,” he said. “I think in a fragile 1991 kind of a situation you could think of this but certainly you can’t say we are the fastest-growing economy in the world and we are so fragile that we have to give tax concessions almost to close our eyes on round-tripping.”

India's economy has been accelerating at the fastest globally for two consecutive years and it's now a picture of dynamism and good governance under the Narendra Modi government, which took charge two years ago.

“The image deficit that existed, which created a problem, has been significantly rectified. Nobody accuses India of policy paralysis. Nobody considers India a nation of scams. Nobody doubts our potential to reform,” the finance minister said. “The credibility of governance, decisiveness of the prime minister are established facts. Growth also is coming back. After all, this is the first time in history that we are for two consecutive years the fastest growing economy in the world and hopefully in the third year also should be the same.”