The government and the Reserve Bank of India are inching forward to conclude a number of changes in the rules to cut-down the proportion of bad loans in the banking sector. This move is a prerequisite to kick-start the investment cycle and push the growth.
Finance Ministry has told that measure being decided include changing the existing Joint Lenders Forum for faster resolution of NPA’s (Non-Performing Assets), a scheme for settling the bad debts in one go and penal action for the defaulters who have drawn off loans for their business purposes. Sources have revealed that the state-owned banks have been asked by the government to conduct a forensic audit of the top 50 loan defaulters to separate the genuine cases of business failures from the fake ones.
The Union Finance Minister Arun Jaitley held a meeting with top RBI officials and bankers last week. A roadmap is being drawn on how to deal with the issue of NPA’s in near and medium term.
The government is unlikely to set up a state-owned Bad Bank to take over NPA’s from state-owned banks in the near term. But 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 studied by the government, said sources. Changes have been proposed to the Joint Lenders’ Forum (JLF), which handles the large NPA cases where multiple banks lend money to a single company.
According to the existing rule, a load restricting package is approved by 60% of lenders by number and 75% of lenders by value, the other banks in the JLF have to go according to it. The approval percentage will now see a dip to ensure a faster decision on restricting of loans under JLF. While the changes are discussed, the RBI will now allow the banks to go ahead with a decision on restructuring in case only top 4-5 lenders have to reach the agreement.
The government will also ask the banks to go for one-time settlement of loans with a haircut and the process will be monitored by an oversight committee. The settlement will be done in such a way that it comforts the bankers against any regulatory backlash in the coming future. The number of bad loans is rising over the years, despite the fact that government has announced the Indradhanush plan of reforms for the state-owned banks.
Public sector banks’ NPA’s increased by over Rs. 1 Lakh Crore during the period of April-December from 2016-2017. The gross NPAs in the initial 9 months of the current fiscal rose to Rs. 6.06 Lakh Crore by December 31, 2016 from 5.02 Lakh Crore during the complete year of 2015-2016. The gross NPA’s were Rs. 2.67 Lakh Crore at the end of the period 2014-15. The amount of total stressed assets, which consists NPA’s and restructured loans is much higher.
Top officials feel the need to resolve the bad loans in order to boost the economic growth and the investment cycle.
During a meeting of the Parliamentary Consultative Committee Wednesday, Jaitley said that handling bank NPA’s is a challenging task at hand and the government is thinking about several oversight committees to help solve the bad debts.
During a meeting of the Parliamentary Consultative Committee Wednesday, Jaitley had said that the major problem of bad debts is with the large corporates, mainly in the steel, power, infrastructure and textile sectors, says Jaitley.
The members of the consultative committee suggested many measures to deal with the issue like taking a criminal action against the big wilful defaulters, creating a special bank where NPA’s of all the state-owned banks are transferred, allowing the state government to take part in the auction of the stressed assets, fixing the gross NPA in the range of 9-10 percent and not counting the restructured assets as NPAs.
One member said that the chief vigilance officer of the public-sector bank would be made a part of the credit committee of the bank. And its boards should first take a call about the decision made by their officials, instead of investigating agencies directly taking actions based on their information.
Some of the members also suggested that the government should establish a bad bank or a public-sector asset rehabilitation agency which should only consider those NPAs where the sector-specific reforms do not function. The Economic Survey for 2016-17 has suggested the idea of PARA to solve the issues of bad loans. Jaitley said, on the issue of setting up a bad bank, that several possible way outs exist and the issue is being debated on the public platforms.