Non performing assets are legacy of UPA: Jaitley tells LS during budget session

Finance minister Arun Jaitley said the Reserve Bank of India (RBI) has not come out with an estimate of scrapped notes that came back into the system after November 8 as the process of computing those notes was still on and the central bank will not give out numbers hurriedly.

The demonetisation exercise, which has led to a surge of low cost funds into the banking sector, will not only help in expanding the size of the formal economy but also eventually push up tax collections, Jaitley said in the Lok Sabha on Thursday. The move will also facilitate banks to reduce interest rates, he added.

Reiterating that usage of cash leads to parallel economy, Jaitley said the cash-to-GDP ratio in India is 12.2%, while in China it is 4.7% and in most other developing and developed economies, it was much lower at 2-5%.

Replying to a question, the minister said the pile of non performing assets (NPAs) in the banking system at present was a legacy problem. Most large ticket size loans that have turned NPA were given to big companies between 2007 and 2009. “This is your legacy… We are paying the interest,” he said.

Jaitley added that the problem was not with the NDA government’s management of public sector banks but the “over-management of banks” in UPA era.

Hinting at recent reports suggesting that there was interference from “North Block” in helping loan defaulter Vijay Mallya, promoter of the now defunct Kingfisher Airlines, get money from banks, the minister said not a penny was provided to him since the NDA government assumed office.

Jaitley said the problem of NPA is partly because of the slowdown and partly due to “interferences” from erstwhile authorities.

Jaitley, and by extension the ruling party, received flak from the Congress when former finance minister P Chidambaram accused the government of “fumbling, bumbling, scrambling” and inventing a new narrative every day on the issue of demonetisation.

Initiating the discussion on general budget in the Rajya Sabha, Chidambaram termed the budget a “great disappointment,” and estimated that 2016-17 will see a hit on GDP by 1-1.5%. “If very unlucky”, he said it could even be 2%. The former finance minister warned that this trend will spill over into 2017-18.