Finance Minister Nirmala Sitharaman announced a slew of public sector bank mergers along with governance reforms in PSBs in a press conference on Friday. She maintained that the bank consolidation will boost credit availability in the economy which would go a long way in achieving the goal of a $5 trillion economy. Also, she talked about the reforms which the government had brought about in the banking sector, and also announced new ones. As part of this, she detailed the Centre’s efforts to oversee loans of a large amount.
Sitharaman stated that there was no interference in the commercial decisions of the banks as opposed to the restrictions which existed in 2014. Further, she added that 3.38 lakh shell companies had been eliminated, and also announced that limits had been set on how many banks could be part of a 'consortium':
“National Financial Reporting Authority (NFRA), the independent regulator has been set up. The resolution for stressed assets is happening through the IBC (Insolvency and Bankruptcy code). Consortium of banks which can get together in funding a project have now been reduced to 7-9 banks at best, irrespective of the magnitude of the project. Techno-economic evaluation cells have been created in the banks to ensure that there are no inadequacies found.”
The Finance Minister mentioned that technology analysts are being used for robust risk assessments to provide due diligence to banks.
According to the Finance Minister, early warning signal reading was a very important step which the government had undertaken. She revealed that specialized agencies had been set up, who were monitoring every loan which was over Rs. 250 crore. Sitharaman reiterated that cash flows were now being ringfenced.
She stated, ”Banks were overexposed to corporate loans. Now, there is a good asset mix. Sanctioning and monitoring of big loans have been strictly separated so that there is no confusion between the authorities. Quality of tier 1 capital has been enhanced. Stressed asset verticals have already been created.”
The Finance Minister reminded the audience that the Fugitive Economic Offenders Act had been passed. She explained that as a result of that, assets of such alleged offenders had been confiscated. All efforts were being made to get them back in the country, she observed. Nirmala Sitharaman elaborated that SWIFT messages were now linked to the Core Banking System (CBS) to avoid Nirav Modi-like fiasco in the future. She was referring to the bank fraud committed by Nirav Modi and others, who fraudulently obtained Letters of Undertaking from the overseas branches of Indian banks, which the authorities failed to detect in time.