Large wilful defaulters face criminal action

PMO, FinMin, RBI also plan one-time settlement scheme for some sectors

The government, along with the Reserve Bank of India (RBI), is mulling a multipronged strategy — initiating criminal action against wilful, big defaulters and a one-time settlement for certain sectors — to tackle the mess of toxic debts in public sector banks.

The strategy will also involve encouraging banks to take a haircut, setting up more oversight panels and reworking the joint lenders’ forum (JLF).

Ways to initiate a push to nab large, wilful loan defaulters and resolving rising non-performing assets (NPAs) were discussed in a slew of meetings among the Prime Minister’s Office (PMO), the finance ministry and the RBI, officials said. Also, criminal action was being contemplated against the offenders, according to them.

A panel chaired by Cabinet Secretary P K Sinha is working on the one-time settlement scheme. A reduction in interest rates is also being considered for a few sectors.

The government will encourage banks to take a haircut in certain cases to resolve NPAs. The core issue of NPAs is with respect to very large companies, predominantly in the steel, power, infrastructure and textile sectors.

The government is proposing setting up more oversight committees, which will look at recovering NPAs referred to them by banks. Currently there is one such committee formed by the RBI.

The central bank has proposed to rework the JLF to facilitate quicker resolution of loan disputes. It will likely allow two-three banks with the highest exposure in the JLF to approve a restructuring package. Currently, if approved by 75 per cent of creditors by value and 60 per cent by number, other banks have to go along.

A JLF has to be formed when the aggregate exposure is more than ~100 crore and loans go bad.

While no more consolidation of weaker banks with larger ones is being worked out, more support for weaker banks is being mulled to revive them, according to sources.

“The rise in NPAs is a serious matter. The entire focus of the government is going to be on resolving bad loans. A multipronged strategy is being discussed to revive PSBs. It involves a sector-specific approach and taking stringent criminal action against big defaulters who have siphoned off funds,” said a government official.

Another official said it was time PSBs considered a one-time settlement to resolve the lingering NPA issue in certain cases.

Of the ~6.9 lakh crore of non-performing assets of PSBs, 70 per cent is those of big corporate houses. Bad loans of PSBs rose by over ~1 lakh crore in the AprilDecember period of 2016-17, the bulk of which were in the power, steel, road infrastructure and textiles sectors. PSBs’ gross bad loans stood at ~5,02,068 crore at the end of 2015-16.

At the recent consultative committee meeting attached to his ministry, Union Finance Minister Arun Jaitley said the rate of the rise in banks’ NPAs had slowed in the March quarter and the steel sector had started showing improvement.

Last week, Jaitley had held a closeddoor meeting with RBI Governor Urjit Patel and senior officers to discuss the issue of toxic assets. After the meeting, an official said the government, along with the central bank, would concretise the decisions to tackle the issue soon.