Insolvency and Bankruptcy Code mechanism used actively to resolve Non-Performing Assets problem: Economic Survey

An ecosystem for the new insolvency and bankruptcy process that took shape in 2017-18 is being used actively to resolve the bad loan problem in the banking sector, Economic Survey said.

"A major factor behind the effectiveness of the new Code has been the adjudication by the Judiciary. The Code prescribes strict time limits for various procedures under it," said the Economic Survey 2017-18, tabled in Parliament by Finance Minister Arun Jaitley.

The new Insolvency and Bankruptcy Code (IBC) has provided a resolution framework that will help corporates clean up their balance sheets and reduce debts.

The Twin Balance Sheet (TBS) actions, noteworthy for cracking the long-standing 'exit' problem, need complementary reforms to shrink unviable banks and allow greater private sector participation, the pre-budget Survey said.

The long-festering TBS problem was decisively addressed by sending the major stressed companies for resolution under the new IBC and implementing a major recapitalisation package to strengthen the public sector banks (PSBs), it said.

As a result of these measures, the dissipating effects of earlier policy actions, and the export uplift from the global recovery, the economy began to accelerate in the second half of the year.

Of the 4 R’s of TBS —- recognition, resolution, recapitalisation, and reforms —- recognition was advanced further, while major measures were taken to address the others, it said.

The performance of the banking sector, PSBs in particular, continued to be subdued in the current financial year, it said.

The Gross Non-Performing Advances (GNPA) ratio of Scheduled Commercial Banks (SCBs) increased from 9.6 per cent to 10.2 per cent between March 2017 and September 2017, said the Survey.

PSBs have been reeling under non-performing assets (NPAs) or bad loans, which total around Rs 8 lakh crore and have hampered lending, impacting growth.

With regard to loan growth, the Survey said, non food credit (NFC) grew at 8.85 per cent in November 2017 as compared to 4.75 per cent in the same month of the previous year on annual basis.

"Bank credit lending to Services and Personal Loans (PL) segments continue to be the major contributor to overall NFC growth," it said.

The NBFC sector on the whole accounted for 17 per cent of bank assets and 0.26 per cent of bank deposits as on September 30, 2017, it said, adding that the consolidated balance sheet size increased by 5 per cent (September 2017 over March 2017) to Rs 20.7 lakh crore, as against an increase of 14.2 per cent between March 2016 and March 2017, it said.

The April-November period of 2017-18 witnessed a steady increase in resource mobilisation in the primary market segment as compared to the corresponding period in the last financial year, it said.

"The 10 year G-sec yield, meanwhile, has hardened since September 2017. The G-sec yield as on January 11, 2018 stands at 7.26 per cent," it said.

Talking about monetary policy, the Survey said, it remained steady with only one policy rate cut in August, during 2017-18 (till January).

"Monetary policy during 2017-18 was conducted under the revised statutory framework, which became effective from August 5, 2016. In the third bi-monthly Monetary Policy Statement for 2017-18 in August 2017, the Monetary Policy Committee decided to reduce the policy Repo Rate by 25 basis points to 6 per cent," it said.

It kept the rates unchanged in both October and the latest meeting held in December.