Sinha tells banks to be tough with the wilful defaulters

Directing banks and financial institutions to be tough with the wilful defaulters in their effort to reduce the non performing assets (NPAs)...

Directing banks and financial institutions to be tough with the wilful defaulters in their effort to reduce the non performing assets (NPAs), finance minister Yashwant Sinha said that the government would bring in legislation which would give the banks and FIs the power to acquire the ownership of collateral properties pledged by the borrowers in case of default.

The government is all set to introduce in the Parliament the much-awaited banking reforms Bill, which would grant banks more powers to recover their dues from defaulters and reduce NPAs of banks and FIs, now at over Rs 1,00,000 crore.

The Bill includes provisions on foreclosure and securitisation of assets, which would enable creditors to recover the due amounts more easily from the collateral pledged with them.

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Sinha said strengthening of creditors’ rights would improve bond prices, share prices of banks, create a market for securitised assets, provide an incentive to recover sticky assets and improve banks’ financial health further.

Sinha said the proposed asset reconstruction company (ARC) is also scheduled to come up by this month. The ARC and the enabling laws are intended to reduce the pile of NPAs with banks and FIs. “The ARC would have the specialisation to handle bad loans,” Sinha said. He also said a deposit insurance corporation would be set up after necessary legislative changes to safeguard the interest of small depositors.

While congratulating banks for achieving over 132 per cent growth in net profit and reduction in NPAs, the FM said banks should aggressively take up one-time settlement for small borrowers while clamping down on wilful defaulters.

Sinha asked banks to offer higher credit to small borrowers especially first generation entrepreneurs. “Move out from the charms of top 500 companies and go out to those who need the credit most,” he said. Sinha also advised banks to monitor accounts which tend to become NPAs. He asked banks to work closely with self-help groups and cooperatives to recover dues from borrowers.