To crack down on loan defaulters, Cabinet clears new ordinance

The move is expected to speed up the NPA resolution process, as the bankruptcy code provides for a time-bound winding up of companies and recovery of secured loans.

Written by Sunny Verma | New Delhi | Updated: May 4, 2017 8:01 am
modi, modi cabinet, loan defaulters, reserve bank, loan defaulters india, banking act, arresting loan defaulters, vijay mallya, bank loan default, arun jaitley, finance minister, RBI, indian express Reserve Bank of India (File Photo)

THE CABINET Wednesday approved promulgation of an ordinance to amend the Banking Regulation Act to give the Reserve Bank of India more powers to deal with non-performing assets (NPAs) in the sector. Sources said the amendments in existing laws will empower the RBI to take action against loan defaulters and defaulting companies under the bankruptcy code. The ordinance has been sent to President Pranab Mukherjee for assent. The amendments also enable the RBI to set up multiple oversight committees to deal with NPAs. Changes have been built into the law to ensure that bankers who opt for resolution of bad debts and take haircuts on loan values are ring-fenced from any regulatory backlash, sources said.

The move is expected to speed up the NPA resolution process, as the bankruptcy code provides for a time-bound winding up of companies and recovery of secured loans. “We expect the entire process of banks selling bad loans and effecting recoveries to gather momentum,” said a top finance ministry official. The government and the RBI have already prepared a list of top 50 loan defaulters against whom action can be initiated. The Indian Express had reported in February 2016 that Rs 1.14 lakh crore of bad loans had been written off by state-owned banks between 2013 and 2015.

On Wednesday, following the Cabinet meeting, Union Finance Minister Arun Jaitley said that a recommendation related to the NPA issue had been sent to the President for approval. He did not provide any further details. “Banking sector ko lekar kuch pramukh nirnay mantri parishad mein hua hai (There has been important decisions taken regarding the banking sector at the Cabinet meeting),” Jaitley said. “Lekin ek maryada hai ki jab manya rashtrapatiji ko koi mantri parishad sifarish karta hai, uss proposal ki details hum tab tak nahi dete jab tak Rashtrapati Bhavan se aur manya rashtrapatiji ki swikriti na aa jaye (But as a mark of respect, we do not divulge details of the same until we get the President’s approval),” Jaitley said.

Sources said officials in the department of financial services, which oversees the banking sector, were coordinating with the President’s office till late in the night to ensure timely approval for the ordinance. When contacted by The Indian Express, banking secretary Anjuly Chib Duggal refused to provide any details of the ordinance. Another finance ministry official said the ordinance is expected to be cleared by the President soon — may be “as early as tomorrow”. Finance ministry officials said the legislative change is one among a series of measures being planned to tackle the bad loan issue. The RBI is also expected to take up sector-specific measures to deal with NPAs.

Sources said corporate borrowers who have diverted loans taken for specific purposes will be the first to come under the regulator’s scanner. Officials also ruled out any immediate plans to set up a state-owned bad bank that will take over the NPAs of public sector banks. NPAs have been rising in the banking sector despite the government taking a series of measures in recent months. Scheduled commercial banks’ total stressed assets, which comprise gross NPAs as well as restructured standard advances, stood at Rs 9.64 lakh crore as on December 31, 2016, as per finance ministry data. Bad debts have risen sharply in state-owned banks while private banks have registered a relatively lower spike in NPAs in the fiscal year.

Public sector banks’ NPAs surged by over Rs 1 lakh crore during the April-December period of 2016-17. PSU banks’ 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 2015-16. For private sector banks, gross NPAs grew to Rs 70,321 crore by December 31, 2016, from Rs 48,380 crore as on March 31, 2016.

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    sharma
    May 4, 2017 at 3:31 pm
    WHAT ABOUT FARMERS LOAN AND WHAT ABOUT HUGE WRITE OFF FOR PUBLIC SECTOR UNDERTAKING. THIS IS NOT FAIR TO THE INDUSTRIES ACTUALLY GENEATING REVENUES AND PAYING TAXES.
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      Vijay
      May 4, 2017 at 2:26 pm
      At the time of sanctioning a loan - big or small - banks get filled tons of do ents from the clients, then what are these NPAs and why ???
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        Suhas
        May 4, 2017 at 2:16 pm
        If the government is really serious about punishing the defaulters, it should make public the list of all defaulters along with the names of persons who stood as guarantors, and forthright confiscate all ets of these persons. Next it should impound their passports and freeze all bank accounts, set up special tribunal courts for speedier hearing of cases where no stays or bails are granted to the accused persons. The politicians who offered their clout for the benefit of defaulters in getting loans should be debarred from contesting elections for lifetime, and the bank officials who were responsible for sanction of loans should be dismissed from service on defacto basis and all their properties attached for recovery of loans. Only drastic measures will help us purge the system. All banks should share the defaulters list amongst themselves so that no bank can ever give these cronies new loans
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          Rene Fernandez
          May 4, 2017 at 2:12 pm
          SC must instruct the Public sector banks to publish the names of all defaulters who have defaulted on loans of Rs 1 crore and above and confiscate their properties prior to sending them to jail until they clear our loans as they have literally looted tax payer money
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            Tushar
            May 4, 2017 at 2:10 pm
            Instead of waving off farmers s loans in UP they could have given 4 years as no repayment period of their outstanding as an encouragement to do their work with an aim to repay their amount from their profit .. Ofcourse farmers face problems like drought but government doesn't owe them if it continuously happen every year..So once they are not meant to repay for 4 years they should work hard to over come the loss and repay ..By this action they could have saved crores of rupees...all these drama of tracking defaulters are just a gimmick
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              Tushar
              May 4, 2017 at 2:02 pm
              There is no more.news about maliah Ji.. He must have flew to another destination by this time .LoL...
              Reply
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                l s
                May 4, 2017 at 12:22 pm
                How many escape loop- s are there in this act ????? Surely, the makers of this act must have kept some for looters , businessmen and politicians some way to escape. This act should have been vetted by supreme court, so that no escape for future loan defaulters exist.
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                  Shakhi
                  May 4, 2017 at 11:16 am
                  One Mr Suri says the loans should be vetted by CAs. CAs are an unclean lot nowadays who tamper with their clients balance sheet so that the promoters margin is not paid. They wilfully ist their client in diversion of funds. They think of various ways of beating the system by avoiding tax paying.
                  Reply
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