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Tuesday, Sep 24, 2002

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NPA Ordinance for UTI, co-op banks on hold

Sarbajeet K. Sen

NEW DELHI, Sept. 23

THE Government has put on hold the proposal to bring Unit Trust of India (UTI) and urban co-operative banks (UCBs) under the Ordinance for recovery of non-performing assets (NPAs).

The decision comes at a time when the Ministry of Finance is in the midst of implementing a major bailout-cum-privatisation package for restructuring UTI, while at the same time exploring possibilities of revitalising the co-operative credit structure through appropriate changes in the legal and regulatory framework.

Officials, however, said that the decision to keep UTI and UCBs out of the loan recovery Ordinance for the time being was not directly linked to the pending restructuring of the trust or the changes in the co-operative credit structure.

Instead, they said that a view had been taken that any move to grant the powers under the new law to new entities by way of notification would have to wait till the Ordinance is converted into an Act through Parliament's assent.

"We have decided to issue all such notifications for bringing new entities under the law only after the Ordinance is converted it into an Act. The UTI restructuring has nothing to do with the decision," officials said.

The Ordinance provides that the Government may issue a notification to include new entities under the law as and when it thinks it to be appropriate.

While the UTI management had requested the Government to issue a notification to bring it under the Ordinance, UCBs have also been lobbying hard for the powers through their representative bodies.

UCBs feel that the sector is heavily stressed by a growing burden of NPAs. The Reserve Bank of India (RBI) in its Annual Report for 2001-02 had pointed out that the NPAs of UCBs had grown by 24 per cent during 2001-02 and stood at Rs 11,472 crore on March 31, 2002, as against Rs 9245 crore at the end of the previous fiscal.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Ordinance provides powers to the lenders to attachment of property, auction of assets of defaulters and takeover of management of the companies of those borrowers who refuse to pay up their dues within 60 days of sending of notice for recovery by the lenders.

Commercial banks and financial institutions have swiftly initiated action under the Ordinance and have already collectively issued several thousand notices to defaulters warning them to pay up within the stipulated time frame or alternatively face action as per the Ordinance.

The Ordinance, which was promulgated prior to the monsoon session of Parliament, could not be taken up for discussion during the session due to shortage of time. The Ordinance has since been re-promulgated.

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