NEW DELHI: India is committed to protecting state banks suffering from mounting bad loans after they reported almost $2.7 billion in losses in the last two quarters, Finance Minister Arun Jaitley said on Monday.
The banks are struggling under a mountain of soured loans, prompting central bank governor Raghuram Rajan to set a 2017 deadline for them to clean up their balance sheets.
After meeting the heads of India’s 27 public-sector banks, Jaitley said the government has already earmarked 250 billion rupees ($3.7 billion) for recapitalization of banks this year and would provide more if needed.
“Banks should be empowered and constitutionally should be protected so as they can bring about commercially prudent settlements,” Jaitley told reporters after the meeting.
“We must support them fully so that their ability to support [economic]growth remains sound.”
Jaitley said the government has overhauled its bankruptcy law, which will soon make it vastly easier to wind up companies and help banks recover bad loans.
He said other reforms to help banks were also in the pipeline.
Jaitley said the 180 billion rupees ($2.7 billion) in net losses suffered by the state banks in the last two quarters were mainly because of provisions for bad debt.
The Reserve Bank of India has asked lenders to treat some troubled accounts as bad loans and make adequate provisions for these loans as the banks come under increasing pressure to clean up their books.
Vijay Mallya, a liquor tycoon who left the country in March owing $1.34 billion, has come to personify India’s problems with bad debt, with banks scrambling to recover loans to his now-defunct Kingfisher Airlines.