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NPA crackdown: Government asks PSU banks to do forensic audit of defaulters
Written by Sunny Verma | New Delhi | Published on: March 18, 2017 5:22 am
THE GOVERNMENT and the Reserve Bank of India are close to finalising a number of changes in rules to reduce the proportion of bad loans in the banking sector, a prerequisite to kick-starting the investment cycle and pushing growth. Finance ministry sources told The Indian Express that the measures being finalised include tweaking the existing Joint Lenders Forum for faster resolution of NPAs (non-performing assets), a scheme for one-time settlement of bad debts and penal action for defaulters who have siphoned off loans taken for business purposes. Sources said that state-owned banks have been asked to conduct a forensic audit of top 50 loan defaulters to separate genuine cases of business failure from those where funds have been diverted.
They said that Union Finance Minister Arun Jaitley held a meeting with top RBI officials and bankers last week, and a roadmap is being worked out to deal with the issue of NPAs in near and medium term.
While the government is unlikely to set up a state-owned Bad Bank to take over NPAs from state-owned banks in the near term, the Department of Financial Services has been asked to review the existing framework of private asset reconstruction companies over the next few months and submit a report. A largescale auction of bad debts is also being looked into by the government, said sources. Changes have been proposed to the Joint Lenders’ Forum (JLF), which deals with large NPA cases wherein multiple banks are lenders to a single company.
As per the existing rules, if a loan restructuring package is approved by 60 per cent of lenders by number and by 75 per cent of lenders by value, the other banks in the JLF have to go along with it. The approval percentages are now expected to be reduced to ensure a faster decision on restructuring of loans under JLF. As per the changes being discussed, the RBI may allow banks to go ahead with a decision on restructuring if just the top 4-5 lenders were to reach an agreement.
The government will also encourage banks to go for one-time settlement of loans with a haircut, and this process will be overseen by an oversight committee. The settlement will be done in a manner that it gives comfort to bankers against any regulatory backlash in future, sources said. The proportion of bad loans has been rising over the years, despite the government having announced the Indradhanush plan of reforms for the state-owned banks.
Public sector banks’ NPAs surged by over Rs 1 lakh crore during the April-December period of 2016-17. Gross NPAs in the first nine months of the current fiscal rose to Rs 6.06 lakh crore by December 31, 2016, from Rs 5.02 lakh crore during the entire year of 2015-16. The gross NPAs were Rs 2.67 lakh crore at the end of 2014-15. The amount of total stressed assets, which comprises NPAs and restructured loans, is much higher.
Top officials have acknowledged the need to resolve bad debts, in order to push economic growth and reinvigorate the investment cycle.
During a meeting of the Parliamentary Consultative Committee Wednesday, Jaitley had said that dealing with bank NPAs is a challenging task and that the government was considering several oversight committees to help with resolution of bad debts.
The core problem of bad debts is with very large corporates, predominantly in the steel, power, infrastructure and textile sectors, Jaitley said.
Members of the consultative committee suggested several measures to deal with the issue such as initiating criminal action against the big wilful defaulters, creating a Special Bank where NPAs of all the state-owned banks are transferred, allowing the concerned state government to take part in the auction of stressed assets, fixing the gross NPA in the range of 9-10 per cent and not counting restructured assets as NPAs.
One of the members said that the chief vigilance officer of the public sector bank would be made a part of the credit committee of the bank, and that its board should first take a call about the decisions being taken by their officials, rather than investigating agencies directly acting on the basis of their own information.
Some members suggested that the government must establish a bad bank or a Public Sector Asset Rehabilitation Agency (PARA), which should only consider those NPAs where sector-specific reforms do not work. The Economic Survey for 2016-17 has also suggested the idea of PARA to resolve the problem of bad loans. On the issue of setting-up a “bad bank”, Jaitley said that several possible alternatives exist, and the issue is being debated on public platforms.
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May 18, 2017 at 7:11 am
dear sir, ever since bjp govt took over. cleaning of accounts by banks seems to have given top priority. mr. modi and mr. jaitly are making effforts but the number of defaulters and volume of loans is alarming. we have seen supreme court also seriously getting involved. past is past,we need to set the house in order as it is public money, above all any wrong step maylead to large scale unemployment. firstly an expert team need to study,case by case, honestly you will have genuine cases where corporates lost huge sums in business expanision,upgradation, wrong forecast, higher wages,adverse market conditions,maintanance of business etc. above all team need to see how the present business is, are existing management running the business,revenue earned to enough. my appeal is to join hands with such company and run the show, a little support to such company,loans can see the light.business will grow,share value can be seen up ward trend. save deccan chronicle and taste the suce
Mar 18, 2017 at 2:13 am
Main problem was of govt owns. rolling out credit for growth. but end result was NPA. now govt ping bucks on PSU banks. Non of above mentioned loans were given without greasing palms of babu’s or netas. lt;br/gt;For ordinary netizens to obtained a simple housing loan. he has to wait or run pillars to post
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