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Empowering RBI to speed up NPA resolution: Ordinance to cover 70% cases, top 40-50 defaulters, says Govt

PSBs’ gross NPAs rose to `6.06L cr by Dec 31, 2016, from `5.02L cr in entire FY16.

Written by Sunny Verma | New Delhi | Published: May 9, 2017 6:05:34 am
RBI, Reserve Bank of India, NPA, non performing asset, banking regulation act, arun jaitley, Bankruptcy Code, bad debt, bad loan, indian express news, india news, business news Reserve Bank of India. (File Photo)

The finance ministry expects the Ordinance empowering the RBI to speed up NPA resolution process especially in cases where a consortium of lenders has lent to a single corporate group, a top government official said on Monday. This is expected to cover nearly 70 per cent of stressed assets cases, starting with the top 40-50 loan defaulters, the official said.

The RBI — which amended the Joint Lenders’ Forum (JLF) norms to ensure speedy NPA recovery — will advice banks to refer cases to the Insolvency and Bankruptcy Board of India or the National Company Law Tribunal. Sources said action can be expected immediately in cases where the JLF has already taken a decision, but was not being implemented.

“Depending upon the decision taken by the bankruptcy board or the NCLT, the call will be taken on whether to revive a stressed company or to wind it up,” the official said. For loans of more than Rs 100 crore to a corporate group, lenders are required to form a JLF to decide on the course of resolution of loans.

The RBI last Friday amended the JLF norms, which now require that if a loan restructuring package is approved by 50 per cent of lenders by number (as against 60 per cent earlier) and by 60 per cent of lenders by value (as against 75 per cent earlier), the other banks in the JLF have to go along with it.

“We expect the Ordinance, through which the RBI amended the JLF rules, to break the logjam in case of multiple or consortium lending arrangements, wherein as much as 70 per cent of the stressed assets are stuck,” the official said. Scheduled commercial banks’ total stressed assets, which comprise gross NPAs as well as restructured standard advances, were at Rs 9.64 lakh crore as on December 31, 2016.

The Ordinance amending the Banking Regulation Act, notified by government last Friday, empowers the RBI to specifically direct private as well as state-owned banks to initiate insolvency resolution process and winding up petitions against defaulting companies under the Bankruptcy Code. The RBI can also set up multiple oversight committees to aid banks in resolving stressed loans.

The RBI’s advice to banks in specific cases will not be binding, but it will provide adequate cover to the bankers afraid of taking decisions on resolution of bad loans due to the fear of investigative backlash in future, the official said. Also, any decision on haircuts to be taken on recoverable loans will be taken on commercial basis by the banks, which will be overseen by an oversight committee.

“When 60 per cent lenders follow the resolution process, it will lead to price discovery and the kind of haircuts that will be taken. In essence, it is a commercial decision, monitored by an oversight committee and endorsed by the RBI,” the official said. Bad debts have risen sharply in the state-owned banks, while private banks registered somewhat lower jump in NPAs in the nine months in 2016-17.

Public sector banks NPAs surged by over Rs 1 lakh crore during April-December period of 2016-17. PSU banks gross NPAs rose to Rs 6.06 lakh crore by December 31, 2016, from Rs 5.02 lakh crore during the entire year of 2015-16. For the 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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