Ministry sets up panel to ensure banks recover bad loans

KRamkumar:BL:23 july 2012

Mandated to follow-up all cases of loss assets

MUMBAI, JULY 22: 

The Finance Ministry has set up a committee to ensure that public sector banks (PSBs) go the whole hog in recovering bad loans. This move comes at a time when the chips are down on the loan growth front in the banking sector. The two-member committee has been mandated to follow-up all cases of loss assets with each public sector bank (PSB). It has also been tasked with the responsibility to follow-up all cases filed with debt recovery tribunals (DRTs). The idea behind constituting the committee is to bring focus on liquid assets locked up in the form of loss assets and in cases filed with DRTs. This could also be seen as a move to make up for a possible decline in income from loans and advances due to slowdown in the economy. Bankers say recoveries directly get added to the bottomline and could help banks sustain profitability at last year’s level.

LOSS ASSET AND DRT

A loss asset is an asset (or a loan) which is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value. Banks make 100 per cent provisioning for such assets. DRTs have been established by the Government across the country under an Act of Parliament for expeditious adjudication and recovery of debts due to banks and financial institutions. They can apply to the Tribunal for recovery of debts of Rs 10 lakh or more.

COMMITTEE MANDATE

The committee members appointed by the Ministry are, Mr P.L. Gairola, former Chairman & Managing Director, Dena Bank, and Mr Anil Girorta, former Executive Director, Andhra Bank.

The committee will have a meeting with the executive director and general manager of each bank once a month wherein the status of each case will be reviewed.

It will prescribe the milestones to be achieved before the next meeting.

Initially, the committee will take up monitoring of loss assets and DRT cases of banks located in the National Capital Region (NCR) – Punjab National Bank, Oriental Bank of Commerce and Punjab & Sind Bank.

Members of the committee will visit the headquarters of various PSBs once in a quarter and in between they would review through video conference each month from the zonal office of the bank located in NCR. Come August, the committee members will be required to make the first visit to all banks and to put the monitoring system for recoveries in place.

RECOVERY TRACK RECORD

There are 26 PSBs in India – 21 nationalised and 5 associate banks of State Bank of India. According to the RBI data, as on March-end 2011, loss assets of PSBs aggregated Rs 6,463 crore (Rs 5,750 crore as on March-end 2010).

In FY2010-11, the number of cases referred to DRTs were at 12,872 (6,019 in FY2009-10) aggregating Rs 14,092 crore (Rs 9,797 crore). Recoveries in FY2010-11 aggregated Rs 3,930 crore (Rs 3,133 crore).