NPA crackdown: Government asks PSU banks to do forensic audit of defaulters

While the government is unlikely to set up a state-owned Bad Bank to take over NPAs from state-owned banks in the near term, the Department of Financial Services has been asked to review the existing framework of private asset reconstruction companies over the next few months and submit a report. A largescale auction of bad debts is also being looked into by the government, said sources. Changes have been proposed to the Joint Lenders’ Forum (JLF), which deals with large NPA cases wherein multiple banks are lenders to a single company.

As per the existing rules, if a loan restructuring package is approved by 60 per cent of lenders by number and by 75 per cent of lenders by value, the other banks in the JLF have to go along with it. The approval percentages are now expected to be reduced to ensure a faster decision on restructuring of loans under JLF. As per the changes being discussed, the RBI may allow banks to go ahead with a decision on restructuring if just the top 4-5 lenders were to reach an agreement.

The government will also encourage banks to go for one-time settlement of loans with a haircut, and this process will be overseen by an oversight committee. The settlement will be done in a manner that it gives comfort to bankers against any regulatory backlash in future, sources said. The proportion of bad loans has been rising over the years, despite the government having announced the Indradhanush plan of reforms for the state-owned banks.

Public sector banks’ NPAs surged by over Rs 1 lakh crore during the April-December period of 2016-17. Gross NPAs in the first nine months of the current fiscal rose to Rs 6.06 lakh crore by December 31, 2016, from Rs 5.02 lakh crore during the entire year of 2015-16. The gross NPAs were Rs 2.67 lakh crore at the end of 2014-15. The amount of total stressed assets, which comprises NPAs and restructured loans, is much higher.

Top officials have acknowledged the need to resolve bad debts, in order to push economic growth and reinvigorate the investment cycle.

During a meeting of the Parliamentary Consultative Committee Wednesday, Jaitley had said that dealing with bank NPAs is a challenging task and that the government was considering several oversight committees to help with resolution of bad debts.

The core problem of bad debts is with very large corporates, predominantly in the steel, power, infrastructure and textile sectors, Jaitley said.

Members of the consultative committee suggested several measures to deal with the issue such as initiating criminal action against the big wilful defaulters, creating a Special Bank where NPAs of all the state-owned banks are transferred, allowing the concerned state government to take part in the auction of stressed assets, fixing the gross NPA in the range of 9-10 per cent and not counting restructured assets as NPAs.

One of the members said that the chief vigilance officer of the public sector bank would be made a part of the credit committee of the bank, and that its board should first take a call about the decisions being taken by their officials, rather than investigating agencies directly acting on the basis of their own information.

Some members suggested that the government must establish a bad bank or a Public Sector Asset Rehabilitation Agency (PARA), which should only consider those NPAs where sector-specific reforms do not work. The Economic Survey for 2016-17 has also suggested the idea of PARA to resolve the problem of bad loans. On the issue of setting-up a “bad bank”, Jaitley said that several possible alternatives exist, and the issue is being debated on public platforms.