Panel On Cards to Okay PSBs’ Bad Loan Settlement Plans
Move will ensure banks are not quizzed by vigilance agencies later
New Delhi: The government is considering forming a threemember committee to approve the bad loan settlement plans of public sector banks, thus providing managements the comfort that their actions won’t be questioned by vigilance agencies later.
The move comes after the government’s bid to clean up the bad-loan mess and give state-run banks a fresh start didn’t elicit an enthusiastic response. Bankers are not keen on a one-time loan settlement that involves taking a haircut, fearing investigating agencies will come after them. On Cleanup Mode Govt wants to speed up settlement of NPAs There is a well laid out process for one-time settlement But banks are not okay with it as they need to take big haircuts There are concerns about vigilance agencies quizzing them
The Ombudsman-type panel will consist of an ex-Supreme Court judge, a former chief vigilance commissioner and a retired official of the Comptroller and Auditor General. Banks can approach the panel with settlement proposals for approval and execute them without fearing action against them, a top government official told ET. No formal proposal has been prepared but senior government officials have verbally broached the idea with some bank chiefs, the official said. Gross non-performing assets (NPAs) of state-run banks more than doubled to 6.78% at the end of December 2015 from 3.22% at the end of FY13. The figure is expected to rise. The Reserve Bank of India’s Asset Quality Review (AQR) requires banks to correctly classify their loan portfolios, with a deadline of March 2017 to clean up the books by making full provisions.
Quick settlement of bad loans will ensure that banks are in a position to recover some value from them. There are comprehensive rules on compromise and one-time settlements but progress is slow because of fear about adverse comments from oversight bodies if the amounts are large.
Banks recently refused settlement offer of as much as .₹ 6,400 crore from Vijay Mallya for Kingfisher Airlines’ dues that in all add up to about .₹ 9,000 crore.
“Anything that helps is welcome,” a senior banker told ET.
Abheek Barua, chief economist of HDFC Bank, endorsed the proposal.
“If the haircut is pretty large, then it may become difficult for a bank to take the call,” he said, adding that this was the reason sale of bank loans to asset reconstruction companies had not taken off. “ARCs often pay a pittance,” he said.
In FY15, state-run banks made one-time settlements of loans to the tune of .₹ 52,542 crore, including write-offs. The settlements are usually of small loans.