Admitting non-performing assets of banks as one of the challenges for the economy, he said, "The easier solution people have been talking about the problem of balance sheet of the banks, the problem of NPA is to provide more capital, inject more...
capital into the banks."
As on September 30, 2016 gross NPAs of public sector banks rose to Rs. 6,30,323 crore as against Rs. 5,50,346 crore by June end.
This represents an increase of Rs. 79,977 crore on quarter on quarter basis.
To clean up balance sheet, the government has announced plans to recapitalise the PSU banks.
"Are we going to inject simply more capital and encourage inefficiency or are we going to link up capital infusion with improvement in efficiency, with resolution of stressed asset."
The government has already announced fund infusion of Rs. 22,915 crore, out of the Rs. 25,000 crore earmarked for 13 PSBs for the current fiscal. Of this, 75 per cent has already been released to them.
The first tranche was announced in July with the objective of enhancing their lending operations and enabling them to raise more money from the market.
"I think every amount of tax payers' money that goes into the bank will have to be performance linked. That is precisely what the government is doing," he said at the launch of the OECD Economic Survey.
"While it continues to be on recapitalisation that need to be capitalised, the emphasis is perhaps more on linking it to performances, linking it to outcomes of the efforts taken by the banks," he said.
Under Indradhanush roadmap, the NDA government will infuse Rs. 70,000 crore in state-owned banks over four years, while they will have to raise further Rs. 1.1 lakh crore from the markets to meet their capital requirement in line with global risk norms Basel-III.
In line with the blueprint, Rs. 25,000 crore earmarked for the PSBs in each fiscal, 2015-16 and 2016-17. Besides, Rs. 10,000 crore each would be infused in 2017-18 and 2018-19.
In his budget speech on February 1, Finance Minister Arun Jaitley announced capital infusion of Rs. 10,000 crore for the next fiscal beginning April 1.