Government cracks down on PSU banks' NPAs

By The New Indian Express: Yatish Yadav - NEW DELHI

Published: 09th September 2013 10:07 AM

Last Updated: 09th September 2013 10:08 AM

The UPA Government has announced a slew of measures to tackle rising non-performing assets (NPA) of the banks that are threatening to overshadow a string of economic reforms unleashed by the finance ministry and related agencies to improve the country’s fiscal health. NPA is loans, defaulted by the borrowers, which cease to generate incomes for the banks.

According to a August 26 finance ministry note, the NPAs of public sector banks (PSBs) have gone up by 4.39 per cent with the total amount clocking over `1,76,000 crore. The amount is equal to the total budget of health, education and rural development of the country put together. The government owns majority stakes in PSBs and it is responsible for the money deposited in their accounts

 If we add the NPAs of the nationalised banks, including the SBI group, the total figure is a whopping `3,50,000 crore, which could easily finance India’s military and internal security expenditure.

Earlier in July, Finance Minister P Chidambaram had asked banks to focus on the top 30 loan defaulters.

The finance ministry has pointed out four major reasons - current macro economic situation, increased interest rates, lower economic growth and aggressive lending by banks - responsible for increase in NPAs. Among the measures to recover money from defaulters, the ministry has advised PSBs to appoint nodal officers for recovery at each zonal office and Debts Recovery Tribunal (DRT).

 The banks were directed to conduct special drives for recovery of toxic assets and to constitute a board-level committee for monitoring of recovery process. “The government has instructed public sector banks that write-offs should not be more than recovery,” the ministry said.

This decision was triggered by the Reserve Bank of India’s data which revealed that write-off amount - declaring the money as non-collectable - was higher than the actual recoveries in the last four years by public sector banks.

A total amount of `70,359 crore was declared bad debts while only `60,997 crore could be collected between March 2010 and March 2013. The finance ministry note suggested that RBI issued several measures to prevent slippages which include setting up of a loan recovery policy and taking legal recourse to get the money back.

The ministry note pointed out legal mechanism which needs to be adopted under the Enforcement of Security Interest and Recovery of Debts Laws (Amendment Act) 2012, for removing certain bottlenecks in the recovery of bad debts. 

The ministry said banks are also using Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, which empowers financial institutions to recover their NPAs without the intervention of the court. This provides effective and most expeditious provisions to recover dues through acquiring and disposing of the secured assets in NPA account with outstanding amount of `1 lakh and above. The overall procedure of acquiring and auctioning the assets takes around six months.

The finance ministry said public sector banks recovered `16,020 crore by disposing of secured assets of borrowers in 2012-13.

 It also recovered `3,557 crore through DRT and ` 386 crore through Lok Adalats during the same period.

“Among the various channels of recovery available to banks for dealing with bad loans, the SARFAESI Act and the debt recovery tribunals have been the most effective in terms of amount recovered,” the note has stated.