Updated: November 13, 2013 18:48 IST

Take tough stance against defaulting Corporates, FinMin advises PSBs

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A file picture of Finance Minister P. Chidambaram during a press meet in New Delhi. Photo: Rajeev Bhatt.
The Hindu
A file picture of Finance Minister P. Chidambaram during a press meet in New Delhi. Photo: Rajeev Bhatt.

In order to contain bad debts, the Finance Ministry has advised public sector banks to take a tough stand while sanctioning fresh loan to the corporate houses in case any of their special purpose vehicle (SPV) has defaulted.

The move, Finance Ministry is of the view, will help check rising bad loans which has touched a high of Rs 1.83 lakh crore at the end of June quarter.

“If SPV set up by some promoting group turns out to be bad cases of wilful default then (public sector) financial institution and banks would do well to look out at entire group functioning, management style, and their exposure to the group,” Financial Services Secretary Rajiv Takru told PTI.

“It would be quite inappropriate not to look at such serious event as part of diligence and monitoring where public investment and public money is involved,” he said.

Earlier, Finance Ministry had suggested that wherever possible, the banks can adopt a proactive approach for a change of management of the wilfully defaulting borrower unit as part of recovery of public money.

“People who fall into the category of wilful defaulters, I think better start getting used to the idea that you are likely to lose control and management of your company if you are going to manage it badly.

“Banks must ask the company to change the management as the company is much more important than the fellow running it,” he had said.

Gross non-performing assets (NPA) of public sector banks rose to Rs 1.83 lakh crore at the end of June quarter from Rs 1.55 lakh crore at March 31, 2013.

Interestingly, top 30 loan defaulters of the public sector bank (PSB) accounts for one-third of the total gross non-performing assets of state-run lenders.

The gross non-performing assets (GNPA) amount of top 30 accounts of public sector banks (PSBs) stood at Rs 63,671 crore at the end of June 2013.

While PSU banks accounted for the disproportionate share in this increase in NPAs, the new private sector banks managed to lower their NPA ratio.

Last month, Finance Minister P Chidambaram had said the government is monitoring the top 30 NPA accounts in each PSU bank and asked the lenders to set up separate verticals to recover money.

“We are monitoring the top 30 NPA accounts in each bank, each zone. It is a matter of concern that it is the big borrowers (with loans of over Rs 1 crore) who are defaulting,” Mr. Chidambaram had said.

Reserve Bank Governor Raghuram Rajan had last month sent out a clear message that wilful defaulters would be dealt with strongly.

Asserting that the Finance Ministry and the RBI were on the same page when it came to recovery, he had stated that “this is not being said to create an atmosphere of fear or to be vindictive”.

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