Panel On Cards to Okay PSBs’ Bad Loan Set­tle­ment Plans

Move will en­sure banks are not quizzed by vig­i­lance agen­cies later

The Economic Times - - Front Page - Vi­nay.Pandey2 @times­

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

Com­fort Fac­tor

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.

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