Govt proposes panel to screen one-time bank debt settlement

The move is aimed at encouraging bank officials to take bona fide decisions without fear of coming under lens of investigative agencies or vigilance at a later stage

The finance ministry has sought views from the Indian Banks' Association to set up an external committee to screen applications related to one-time settlement of bank debts, senior bankers said.

The move is aimed at encouraging bank officials to take bona fide decisions without fear of coming under the scanner of investigative agencies or vigilance at a later stage, an executive director with a state-owned bank said. "Lot of times borrowers are willing to come forward with one-time settlement plan, but banks are often not willing to go forward on fear of (scrutiny by) vigilance. This is especially true in case of big ticket borrowers with big hair cut," the executive director said.

The scrutiny by the committee will also protect the interests of smaller banks who are often forced to play ball with larger banks in such situations to salvage some value, as most such deals currently tend to favour the larger banks at the negotiation table, another banking industry official said.

It will also reduce reliance on external consultants to take decisions related to restructuring of stressed loans. The panel is not aimed at tak- ing away the decision making from banks, but to create another layer of approval, a senior banker with a large public sector bank said.

Recently, banks had refused a settlement offer of 60 bln rupees by Vijay Mallya, promoter of the now-defunct Kingfisher Airlines. The company owes over 90 bln rupees to banks.

Earlier this month, Reserve Bank of India Governor Raghuram Rajan had called for more support to bankers who take tough decisions revolving around write- downs or sale of bad loans.

Separately, International Monetary Fund Executive Director Subir Gokarn told Cogencis that there is a case to give "some indemnity" to bankers dealing with stressed assets, who have to take tough calls on write downs on the loan or a lower pricing on an asset to enable its sale to an asset reconstruction company.

Bankers said the approval mechanism through a government-appointed committee would help resolve cases where there is possibly no solution to turnaround the company.

"Till the clean-up exercise continues till March, there will be more cases of one-time settlement. If there is an approval mechanism, banks can fearlessly take decisions," said the above quoted executive director. The RBI has set March 2017 as the deadline for banks to clean-up their books by recognising all stressed assets and cover it with adequate provision. The central bank's Asset Quality Review was spread over two quarters starting October. This resulted in as many as 11 public sector lenders declaring losses to the tune of around 129 bln rupees. A few managed to show meagre profits only on the back of accounting changes and tax write-backs.