Insolvency

RBI’s intent at the time was to crack down on both NPAs and restructured loans.

The banking system has around ₹10 trillion of stressed assets, according to some estimates. Of this, approximately Rs 7.7 trillion is NPAs and the rest, restructured loans, where a resolution process has been launched. But stretching the threshold to “Rs 100 crore, if that number is true” seems to be a classic instance of “overkill”, a banking sector analyst said, asking not to be identified because he says he doesn’t want to be seen to be condoning “defaults”.

“The reduction of the threshold may happen earlier than expected,” an official said.

Still, the move, if it happens, will not be unexpected. In the February statement itself, RBI said that it could announce a similar resolution deadline for accounts with aggregate exposure between Rs 100 crore and Rs2,000 crore , over a two year period. When that happens, smaller loans, and more companies will be on the radar of lenders. Declaring a loan default as an insolvency means banks will be allowed to seize assets like it had done in the Kingfisher airline episode. To be sure, a significant chunk of the NPAs in the system are from large defaulters. For instance, the 12 largest account for a fourth of gross NPAs. The latest move comes amid the fierce political criticism against the government following the fraud at two public sector banks: Punjab National Bank and UCO Bank. Public sector banks account for 70% of the Indian banking industry and their gross Non-Performing Assets have increased by over 4,54,000 crore between March 2015 and June 2017, according to government data, forcing the government and RBI to rethink their strategy.