The “stage is now set” for banks to take effective action in recovering funds from loan defaulters, with the government having taken “a series of measures” to adequately bolster the powers of lenders to effectively deal with the bad loans mess, Union Finance Minister Arun Jaitley said here today.
“…the problem of NPA which is, of course, the next big challenge as far as Indian economy is concerned. We are now coming to a state when a lot of effective steps both legislative and in terms of policy have been taken. Therefore, banks now have to enforce their right in the larger interest of the economy because if money keeps lying and blocked with one particular section, then your capacity to lend to others itself is adversely impacted,” Jaitley said at the 28th Accountants General Conference organised by the Comptroller and Auditor General (CAG).
“I think stage is now set for banks to take effective action in some cases so that people realise that indefinitely you cannot hold on public money because bank money is also at the end of day is public money itself,” he said.
With the Prevention of Corruption Act, 1988, seen as creating hurdles in the resolution of non-performing assets (NPAs), Jaitley said changes in this law were necessary to distinguish between a corrupt decision and erroneous decision to enable public sector bankers and government officials to effectively discharge their duties.
“I wish to make a point…we have now reached level of maturity in governance to distinguish between an erroneous decision and a corrupt decision. Decision honestly taken on basis of the possible view but with a wisdom of hindsight turn out to be erroneous. Are people to be held accountable for those decisions or are they to be held accountable only for a corrupt decision and a decision taken for collateral purpose or in violation of procedure?” he said.
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The Prevention of Corruption Act was re-legislated three years before the liberalisation process started and gave a lot of discretion to the investigating officer. This Act also constrained public sector banks in settling bad loans for the fear of being hauled up by investigative agencies.
“In settling the current lot of NPA, it is this one problem alone which is also creating challenges before officials of various public sector banks. A private sector bank has liberty to settle its NPAs…an officer of public sector banks would be constrained by the provisions of 1988 Prevention of Corruption Act. This issue is already before a Parliamentary committee,” he said.
“The time has come in the liberalised regime where you find the government taking, and civil servants taking important commercial decisions, public sector companies and banks taking important corporate and commercial decisions. Therefore, a law, which will recognise this clear distinction between a corrupt decision and erroneous decision. I think this distinction needs to be very finely stated,” he said.
The finance minister also highlighted the need for improving tax compliance and said that a reasonable rate of Goods and Services Tax will improve compliance, reduce tax evasion and benefit the central and state governments.
Addressing the conference, Comptroller and Auditor General of India Shashi Kant Sharma highlighted the CAG’s challenge of accessing tax-payers data, which can be helpful in improving recoveries by the government. “Notwithstanding the fact that the revenue audit has led to identification and recovery of thousands of crores of tax amounts every year, the Audit Department has faced challenges in accessing the data and information of tax- payers, which significantly limits the potential and effectiveness of audit,” he said.
Sharma said reforms like amalgamation of the railways and general budgets, advancing the budget presentation date and merger of the plan and non-plan expenditure will improve budgetary process and tax administration in a big way. But these measures will also bring in new challenges to accounting and auditing
The CAG said that auditing of urban local bodies and Panchayati Raj institutions was critical since these bodies receive significant funds of around Rs 14 lakh crore annually, but suffer from poor governance systems, weak financial management and poor accountability.
“Successive Finance Commissions have been recommending a key role for the Comptroller and Auditor General in the governance and accountability mechanism of the local bodies. However, we are not the primary auditors of these institutions in most of the states,” he said.