Resolution of NPAs set for major overhaul: Jaitley
Separately, RBI also looking to expand scope of oversight panel to include all badloan cases; rating agencies may now have to vet resolution plans
MUMBAI: The Union government, in tandem with the Reserve Bank of India (RBI), is working on a radical proposal to resolve the issue of bad debts in the Indian banking system, finance minister Arun Jaitley said on Thursday.
“The problem of big NPA (nonperforming asset) is confined to at best 50 companies and therefore those 40-50 accounts need to be resolved. Now, in way of that resolution, several issues come up: You have to find a buyer, strategic partner to find a solution. And if people are slow at doing so, thinking that the system is somewhat hopeless, the system will have to bring in some other instruments,” Jaitley said at the presentation of CNBC-TV18 India Business Leader Awards.
The government, RBI and banks have had a series of meetings over the past couple of months to look at ways to address the issue of bad loans estimated at ₹7 lakh crore.
Jaitley didn’t reveal details in his statement on Thursday. Recently, the finance minister had hinted that the government is looking at increasing the number of oversight committees to deal with bad loans.
Under the scheme for sustainable structuring of stressed assets’ (S4A) announced by the RBI last year for resolution of large stressed accounts, an oversight committee comprising of eminent experts will formulate a resolution plan for dealing with restructured accounts.
“There is some policy decision between the RBI and the government that has been taken. We will certainly have to put adequate pressure on people to settle and if you look at the whole structure, there are enough instruments available for that settlement,” Jaitley added. The new radical measure may go beyond the S4A scheme, he said.
The government and the central bank have been debating many measures to tackle the bad debt problem including creation of a private asset management company, which will work out a feasible resolution plan for the stressed company as well as a national asset management company with a minority government stake for companies that are more stressed.
Separately, the RBI signalled that it may introduce third-party assessments of bad loans — a move that could help accelerate resolution of sticky assets choking the country’s banking system.
If such a system is in place, more than one rating agency would work out the discount at which a bank should transfer or restructure a NPA, encouraging bankers to arrive at a value without fear of their decision coming under the scanner in the future. Presently, bankers do not insist on rating agency assessments before deciding on what restructuring plan to implement.
The central bank is also looking at expanding the oversight committee mechanism to look at all bad-loan cases and not just those under the S4A scheme, RBI deputy governor SS Mundra said on Thursday on the sidelines of a Bandhan Bank branch opening.
S4A allows banks to break up debt into sustainable and unsustainable halves, allowing deep restructuring of the latter, while the former continues to be serviced.
Under S4A, banks had been asked to constitute an oversight committee which would assess a restructuring plan to attest that all due processes had been followed before its implementation. This, along with approval from a rating agency, can help shield bankers from any future investigations.
“Expanding the area of functioning of the oversight committee seems like a good idea. The burden of establishing value will no longer be with the bankers alone,” said Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services LLP.