Bad Loans Bat­tle Turns Bold

India Today - - UPFRONT - —M.G. Arun

Asurge in the non­per­form­ing as­sets (NPAs) of pub­lic sec­tor banks—over Rs 6 lakh crore in De­cem­ber 2016—left the gov­ern­ment no op­tion but to take the bad loans bull by the horns. It no­ti­fied the Bank­ing Reg­u­la­tion (Amend­ment) Or­di­nance, 2017 , which brings about two key changes to the Bank­ing Reg­u­la­tion Act. First, it gives the RBI the author­ity to is­sue di­rec­tions to com­mer­cial banks to ini­ti­ate an in­sol­vency res­o­lu­tion process with loan de­fault­ers un­der the In­sol­vency and Bank­ruptcy Code, 2016. Sec­ond, the cen­tral bank has been em­pow­ered to form pan­els to ad­vise banks on stressed as­sets res­o­lu­tion.

The gov­ern­ment has al­ready sub­mit­ted a list of top de­fault­ers to the Supreme Court. Com­bined with re­struc­tured loans, the to­tal stressed as­sets of sched­uled com­mer­cial banks stood at Rs 9.64 lakh crore as on De­cem­ber 31, 2016, as per fi­nance min­istry data.

In Au­gust 2015, a sev­en­pronged plan, In­drad­hanush, was an­nounced to re­vamp the func­tion­ing of PSBs. How­ever, many ex­perts found the mea­sures in­ad­e­quate, and ar­gued the state should lower its stake in the banks to less than 50 per cent as a first step to­wards mak­ing them more ac­count­able. Their dual reg­u­la­tion by the RBI and the fi­nance min­istry also came in for crit­i­cism. The se­nior man­age­ment at PSBs has of­ten been re­luc­tant to act on bad loans, fear­ing ha­rass­ment by vig­i­lance agen­cies later on. The amend­ments to the Bank­ing Reg­u­la­tion Act pro­tect banks, bankers and the RBI on a host of ac­tions that would have come up for un­nec­es­sary scru­tiny.

Fi­nance min­is­ter Arun Jait­ley, who had been critical of banks for not do­ing enough to ad­dress the bad loans sit­u­a­tion, said the or­di­nance will break the log­jam on bad loans. “The ob­jec­tive of this act is that the present sta­tus quo can’t con­tinue... paral­y­sis in the name of au­ton­omy is detri­men­tal to the econ­omy it­self,” he said. These moves, along with the reshuf­fle of chiefs of seven PSBs to im­prove their ef­fi­ciency, are ex­pected to give banks more teeth in their fight against bad loans.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.