A major proposal made in the Economic Survey is the establishment of Public Sector Asset Rehabilitation Agency (PARA) aimed at reducing the volume of stressed assets of public sector banks. The third quarter of FY 2016-17 has been disastrous for banks as the Gross NPA ratio went up above 7 per cent for the public sector banks as a whole. The three banks having the highest ratio of NPA are IOB-20.26 per cent; UCO Bank 18.66 per cent and Bank of India-16.12 per cent.
Efforts made in the past by promoting agencies such as Asset Reconstruction Corporations could not make much dent on the NPAs. The SARFAESI Act empowers banks to auction residential and commercial properties when the borrowers default on their payments. Debt Recovery Tribunals (DRTs) also have been established for improving recovery process.
Creating an agency like PARA is expected to help take over the stressed assets of public sector banks and initiate steps to recover them. While the proposal is right, the time is not ripe for implementation as the merger mania is haunting the banking sector. The merger of banks can be postponed until they reduce the NPA ratios significantly. The proposed new law and the confiscation of assets of absconders, is expected to help lenders to recover their dues. The confiscated properties may turn out to be a burden unless the banks manage to sell them off.
Recapitalisation...and farm credits
To maintain capital adequacy ratios of banks, recapitalisation becomes inevitable. A provision of Rs.10, 000 crore has been made in the Budget, though the actual amount required has not been disclosed. With the shrinkage of bottom lines, banks are not in a position to expand the provision ratio of bad advances.
As the agricultural sector is expected to grow at 4.1 per cent, its credit needs are bound to increase. Besides this, there is a proposal to double farm incomes over the next five years. Farm credit target for next fiscal has been estimated at Rs. 10 lakh crore. While it is necessary to increase farm income, doubling it within the next five years is a difficult proposition. Indian agriculture continues to be a gamble in monsoon, despite the expansion of irrigation facilities. Supportive actions like crop insurance and improvement in rural transportation are expected to facilitate the increase in farm incomes. Budget allocation under Pradhan Mantri Gram Sadak Yojana has been increased to Rs.19, 000 crore. This investment on rural roads is projected to connect 65,000 eligible rural habitations.
Cheaper housing loans
Housing being a primary necessity, the government proposes to provide one crore houses to the homeless poor by 2019. This is an ambitious target. The project is expected to generate greater demand for various house-building materials, resulting in the development of industries engaged in the production of these materials. Besides this, banks are directed to reduce the rate of interest on housing loans. The National Housing Bank would be extending refinance facility to banks for extending cheaper housing loans.
Creation of multi skill training institutes
There is a proposal to establish 1500 multi skill training institutes covering 600 districts. The objective is to impart training to rural youth so as to help them take to self-employment. An allocation of Rs.1804 crore has been made towards this purpose. During the 12th Five Year Plan, all the public sector banks have been directed to set up Rural Self Employment Training Institutes in their Lead districts. Coordination between these two institutes has to be maintained to realise the benefits they can generate for the rural youth.
Some of the new proposals in the Union Budget 2017-18 were not entirely penciled out. Universal Minimum Income, for example, is a desirable welfare-oriented programme, which has not been explained in detail. n