Union Finance Minister Arun Jaitley on Saturday said that bad debts or Non-performing Assets (NPAs) in the banking system are on the decline as recoveries of unpaid loans have picked up.
Jaitley further said that the recoveries picked up after the Insolvency and Bankruptcy Code (IBC) came into force.
The IBC provides for an auction of assets of loan defaulting entities.
The finance minister also said that the new insolvency law, indirect tax regime and demonetization will help drive India's growth rate and sustain it at 8 per cent.
Talking to media persons, Jaitley said that last several years had been challenging for public sector banks as a large amount of lending was held up in NPAs.
He also added that recoveries are better, the lending ability of banks is much better and to top it all credit growth has significantly moved upwards.
"We are passing through a phase of good growth as far as the economy is concerned. Consumption has moved up, and therefore the banking activity is bound to pick up," Jaitley said after the annual review meet with top PSU bankers.
Financial Services Secretary Rajeev Kumar said banks expect to recover Rs 1.8 lakh crore through IBC and other routes during the current fiscal.
The review meeting Tuesday discussed credit growth and asset quality, he said.
The focus should now be on arresting fresh slippages, he said adding close to Rs 18,000 crore worth of non-core assets will be sold by PSBs this financial year.
He added that there was a need to trust the banking system for meeting the needs of the economy and asked banks to, in turn, ensure clean lending to justify the trust reposed in them.
"Banks must strive to be seen always as institutions of clean and prudent lending," he said.
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Jaitley said the Insolvency and Bankruptcy Code (IBC), Goods and Services Tax (GST), demonetization and digital payments had enabled better assessment of financial capacity and risks which, coupled with inclusive growth, had unlocked the purchasing power which would drive India's growth.
He said this should help India sustain a growth rate of around 8 per cent, an official statement said.
"A growing economy will also help banks grow in strength," he said.
Jaitley underscored the need to have trust and confidence in the banking system as a necessary precondition for meeting the needs of the economy.
"With the recent amendment to the Prevention of Corruption Act, there now need not be any apprehension in the minds of bankers in supporting investments that are in the best interests of the economy, the nation and the banks," he said.
He noted that the perception regarding the health of PSBs had become more positive as banks had posted positive results in terms of resolution, recovery, provisioning and credit growth.
At the same time, he exhorted the banks to ensure all steps at their end to ensure clean lending and effective action in cases of fraud and wilful default, the Finance Ministry statement said.
Noting the positive results from the Insolvency and Bankruptcy Code mechanism, Jaitley flagged the need to assess and revisit the efficacy of the Debts Recovery Tribunal (DRT) mechanism, particularly in view of the long-time taken in disposal of cases.
(With agency inputs)