Banks, FIs close ranks to deal with bad debts

Defaulters beware. The top brass of the country’s lending fraternity has quietly hammered out a broad consensus over the implementation...

Defaulters beware. The top brass of the country’s lending fraternity has quietly hammered out a broad consensus over the implementation of the new Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance (2002), and will now approach the issue with a ‘spirit of commonality’.

The consensus was arrived at after a high-powered meeting held at IDBI on September 19, and presided over by its CMD, P.P. Vora. Other top bankers who attended this meeting were SBI chairman Janki Ballabh; and the CMDs of Bank of India, Bank of Baroda, and the Industrial Finance Corporation of India — K.V. Krishnamurthy, P.S. Shenoy and V.P. Singh respectively—among a host of other big names. Senior bankers said critical suggestions that emanated from the meeting is all set be okayed —if not already—by the Ministry of Finance.

To maintain commonality of interests, bankers have decided that, for a certain creditor, ‘the status of a borrower as a performing asset in the books of this particular creditor should not be deemed to be an adequate reason for not joining the group of secured creditors’.

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Explaining the nuances of this point, a banker said: ‘The general track record of borrowers, their credibility and corporate governance will be important criteria’. It was also agreed upon that if consent is requested by a participating creditor having the relevant non-performing asset account on its books, other secured creditors would readily oblige even if the account is performing in their books. Bankers also agreed to take prior consent of other secured creditors before issuing notices to a defaulting borrower. Consent can also be obtained post-issuance of the notice. This was decided at the meeting even though the Ordinance does not say so.

‘These steps would provide creditors adequate safeguard before taking any course of action. It would also help to avoid unnecessary litigation’, an official who attended the meeting said on condition of anonymity.

Though implementation of the Ordinance does not require prior permission from any court, debt recovery tribunals or Board for Industrial and Financial Reconstruction, bankers have agreed to inform these agencies once 75 per cent of the creditors consent to the same.

The concept of ‘designated secured creditor’ is to be adopted and the creditor with the largest outstanding exposure and NPA on its books will play this role. All other secured creditors will authorise the DSC to act on their behalf to exercise the power given under the Ordinance. There will be no need for a separate ‘Power of Attorney’.