Arundhati Bhattacharya’s solution to India’s NPA mess

After the Narendra Modi-led government announced a massive Rs 2.11 lakh crore for recapitalisation of banks in October this year, former SBI Chairman Arundhati Bhattacharya called for a three-pronged approach to solve India’s NPA mess. Speaking to ET Now, on the sidelines of an event, Arundhati Bhattacharya said, “ The NPA mess needs a three-pronged approach. There has to be recognition, resolution and recapitalisation. All three must go together. The recognition and resolution were over, and now the recapitalisation has also come.”

In October this year, the government had announced an aggressive Rs 2.11 lakh crore capital infusion plan for public sector banks reeling under bad loans over a period of two years.The announcement is being seen as a major step towards helping the public sector banks flush with money post demonetisation but reeling under non-performing assets.

The government has embarked on one of the biggest reforms programmes for India Inc., building a dedicated bankruptcy framework. Earlier this week, 14 cases under the Insolvency and Bankruptcy Code (IBC) have been referred for liquidation, with NCLT benches giving their approvals on mothballing the defaulting companies. When asked about the code, Arundhati Bhattacharya said, “ Since the bankruptcy code is new, we need to wait to see how the whole thing will work.”

Further, Arundhati Bhattacharya said that India is now moving towards a principles based regulation, aligning with global best practices. “Indian norms are getting tighter and tighter and getting closer to international norms. India is moving towards a principles based system as opposed to rule based,” she told tha channel.

Many top bankers and veterans have hailed the massive PSU bank capitalisation reform. Deepak Parekh, Chairman of HDFC had said, “This is an Indian TARP (Troubled Assets Relief Programme) and it has done well because this Rs 2.11 trillion is a two-year thing. So the government has taken care of not just current NPAs but 5-10% that may come up.This is a big bang reform. The equity they put in will increase value for them.”

Experts point out that the government must now expedite consolidation in the public sector banks. In a recent interview to ET Now, Nirmal Jain, Chairman of IIFL said, “Along with the recapitalisation, there are two more things which are needed. One is the consolidation in PSU banks, because so many entities owned by the government are into the same business, that doesn’t make sense. The second thing needed is the autonomy of management, and upgradation of technology.”