NPA recovery gets a jolt from SC

State Bank of India, ICICI Bank, IDBI and other lenders which served over 5,000 notices on loan defaulters—to pay up or face action, in...

State Bank of India, ICICI Bank, IDBI and other lenders which served over 5,000 notices on loan defaulters—to pay up or face action, including the seizure and sale of assets and moves to replace their management—have become toothless on the recovery front following the Supreme Court verdict that said lenders may seize assets but not sell them.

Shares of ICICI Bank Ltd (down by 2.84 per cent) and some rivals fell after the Supreme Court restrained lenders from selling the seized assets of defaulters, endangering bank efforts to pare Rs 68,070 crore of bad loans. Mardia Chemicals Ltd, a debtor, challenged in court a government decree passed in June that empowered lenders and asset management companies to dispose of assets pledged as collateral by defaulting borrowers. The SC order has said lenders may seize assets, not sell them, setting a legal precedent for other debtors to follow. Banks and financial institutions had been counting on the government ordinance to force defaulters to pay their debts and trim bad loans estimated at a combined Rs 68,070 crore ($14 billion) at the end of March 2002.

‘The case now dilutes the interim bargaining power of banks in exercising the ordinance,’ said an analyst. Many banks have been lending less to companies, partly out of concern that bad loans may mount further.

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Mardia Chemical said it wouldn’t be fair to dispossess debtors of their assets in the event Parliament doesn’t approve legislation that would replace the decree.

‘The ordinance is yet to become a law and if any action is taken by secured creditors to sell assets to a third party then the process become irreversible, in the event of it not becoming a law,’ said a lawyer.

The ordinance also paved the way for the creation of India’s first asset management company for bad loans. The transfer of bad loans to the company will help free capital and give banks additional cash to lend. The asset manager will try to sell the bad loans at a discount to their face value, earning a fee for its services.

Some of the defaulters against whom notices were issued include: Usha group companies, DSQ group companies, Lloyds Metal, Modipon, Mardia Chemicals, Parasarampuria Synthetics, Core Healthcare, Krishna Vinyl, Royal Cushion Vinyl, Modern Syntex, Ganesh Benzoplast, Enkay Texofoods, Ruia Cotex (which recently took over the public sector Jessop Industries), Madhu Milan Synthetics, Rama Pulp and Paper and Kesar Enterprises.

Congress may agree to Tejashwi as CM face to get Bihar alliance back on track

Political Pulse4 hr ago

Tejashwi Yadav is set to be the chief ministerial candidate of the Mahagathbandhan alliance, as talks have resolved differences and reduced friendly fights. Though a seat-sharing deal has not been announced, a positive meeting with RJD's leadership has reassured the alliance's unity and focus on bringing change to Bihar.

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