Finance panel flays FIs on NPAs

It mooted the idea of debarring of wilful defaulters from becoming directors of government-controlled companies.

While NPAs – or bad loans – of commercial banks have crossed the Rs 60,000 crore mark, financial institutions in the country have not lagged behind. NPAs of ten leading institutions (including IDBI, ICICI and IFCI) have reported a rise of 11.89 per cent, or Rs 1,929 crore, to Rs 18,146 crore during the year ended March 2000 from Rs 16,217 crore last year.

According to the Reserve Bank’s `Report on Trend and Progress of Banking in India’, IDBI topped the NPA list by notching up bad loans worth Rs 7675 crore by March 2000. In fact, its NPAs have gone up by Rs 1,185 crore from Rs 6,490 crore in the previous year. IFCI followed with NPAs of Rs 4,103 crore, but it reported fall of Rs 134 crore from the previous year’s level of Rs 4,237 crore. ICICI’s NPAs went up to Rs 3,959 crore from Rs 3,623 crore in the previous year, as per the RBI figures.

However, FIs had resorted to large scale loan reschedulements, interest waiver and bail-out packages in the last two years.

A major chunk of NPAs are accounted for loans to the priority sector which include entrepreneurs involved in agriculture, small-scale industry and those who are not able to generate their own finance to invest into their ventures. If a borrower does not return its interest and the principal amount even in instalments for two quarters of the stipulated time it is termed as NPA.

According to the RBI report, the net NPA to net loans ratio of IDBI has gone up from 12 per cent to 13.4 per cent. ICICI’s ratio came down marginally from 7.8 to 7.6 per cent and IFCI from 20.8 to 20.7 per cent.

The RBI study which covered the top 50 NPAs of 33 banks (including 27 public sector banks and top six private sector banks) as on March 31, 1997, had also blamed government policies, import duty changes, deregulation and weak credit appraisal skills among other reasons for the rise in NPAs in the banking sector.

The Parliament panel report further said the committee rejected the Finance Ministry’s contention that it was difficult to distinguish between wiful and genuine defaulters in light of the classification by the Reserve Bank of India (RBI).

It said stern action should be taken against those who resort to siphoning of funds, falsification of accounts and fraudulent transactions including filing of criminal cases.

It has further recommended that the promoters of such companies should not be allowed to avail themselves of institutional finance from public sector commercial banks, DFIs, government-owned NBFCs for floating new ventures for a period of at least 15 years.

In case the defaulters are already on the boards of these companies then the steps should be initiated for ensuring their removal.

In order to deter wilful defaulters, the report said that legislation should be amended to ensure that that companies on whose boards such defaulters are present should be mandatorily asked to disclose this fact in their offer documents before accessing the primary market.

It further said that SEBI should also be asked to incorporate this provision in their disclosure requirements.

It has asked the government to define wilful default for incorporating the same under the RBI Act or under the Public Financial Institutions Act, 1983.

The committee was of the view that FIs have not followed the RBI directives in regard to categorisation and classification of wilful defaulters. It directed that the FIs should follow RBI directives in this respect.