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To tackle the menace of wilful defaulters, the Reserve Bank of India is believed to be drafting a legislation which, if enacted by Parliament, could make it easier for banks to recover loans.
Currently, banks have two main channels — Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act and Debt Recovery Tribunals — for recovering loans.
However, some recalcitrant borrowers manage to stave off recovery action by getting a stay on recovery proceedings from the Tribunals and Debt Recovery Appellate Tribunals.
To ensure that wilful loan defaulters do not put a spoke in the wheel of banks and financial institutions, the legislation that is being considered could also include establishment of special courts to speed up loan recoveries, said a banker clued in to the development.
Wilful defaultA “wilful default” is deemed to have occurred if: a unit has defaulted in meeting its payment/repayment obligations to the lender even when it has the capacity to do so, or has not utilised the finance from the lender for the specific purposes for which finance was taken but diverted the funds for other purposes.
Further, if the unit has defaulted in meeting its payment/repayment obligations to the lender and has also disposed of or removed securities without the bank’s knowledge, then it is a case of wilful default.
That the bad loan rot runs deep in public sector banks (PSBs) has been brought out by the All-India Bank Employees’ Association.
The Association has put together a list which shows that just 50 loan defaulters, which include a defunct airline, a couple of gem and jewellery companies, and some infrastructure companies, owe PSBs a whopping ₹40,500 crore.
According to Finance Ministry data, the top 30 non-performing loans (NPLs) of PSBs constitute 40.2 per cent of the total NPLs of these banks. The ministry has asked the PSB chiefs to take exemplary action, including change of management, as it does not want a situation where the promoter is flourishing while the company is sick.
According to credit rating agency ICRA, PSBs’ gross NPLs increased to ₹2,27,300 crore as at March-end 2014 from ₹1,64,500 crore as at March-end 2013.
The agency said fresh NPL generation rate may remain at elevated levels in the short term.
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