Provisions of the Prevention of Corruption Act (PCA), which do not distinguish between an erroneous and a corrupt decision, are hampering the process of recovering non - performing assets (NPAs), or bad loans, by state - run banks, the government said on Friday.
"I can tell you in settling current lot of NPAs, it is this one problem alone which is also creating challenges before officials of various public sector banks, " Union Finance Minister Arun Jaitley said.
"Today, a private sector bank has a liberty to settle its NPAs, and officers of public sectors banks are constrained by provisions of the 1988 PCA Act, " Jaitley said in his address to the Accountants General Conference, organised by the Comptroller and Auditor General of India (CAG).
"I think this distinction needs to be finally stated.
The corrupt decision must be punishable, the erroneous decision can only give you a post facto analysis so that the system is wiser by that experience, " he said.
The Finance Minister said the PCA's existing provisions give a lot of discretion to the investigating officer in deciding whether a gain accrued was fair or unfair.
"People transact with governments to earn money. . . so a gain in transaction is inevitable.
Whether that gain is a fair gain or unfair gain, that distinction is to be determined, which puts a decision maker, particularly the civil servant, in a very difficult position in a large number of government departments, " he said.
Declaring that the time had come for a liberalised regime that distinguishes between an erroneous and a corrupt decision, Jaitley said the banks will have to enforce their rights and take effective action to recover NPAs as it is constraining their capacity to lend.
"We are now coming to a stage where a lot of effective steps both in terms of policies and legislative has been framed and therefore banks will now have to enforce their rights in the larger interest of the economy, because if money keeps lying blocked in a particular section, then your capacity to lend to others is adversely affected, " he said.
Gross NPA of public sector banks has surged from 5. 43 per cent (Rs 2. 67 lakh crore) in 2014 - 15 to 9. 32 per cent (Rs 4. 76 lakh crore) in 2015 - 16.
The Finance Minister also said that India has not been a tax compliant country and introduction of the Goods and Services Tax (GST) would make it one.
"We haven't been a tax - compliant society.
Disincentivising use of cash, making tax rates conducive to compliance are all steps being taken, " he said.
"We are testing deliberative democracy and maturity of Indian democracy in the GST Council, " he added.
Following the third meeting of the GST Council here earlier this week, Jaitley, who chairs the body, announced that it had almost reached a consensus on compensating states for loss of revenue under the proposed GST regime, which will permit a decision on the new tax structure at the next meeting slated for November 3 - 4.
The government has set the target of implementing the pan - India GST from April 1, 2017.