The Standing Committee on Finance recommended that state-owned banks make public the names of their respective top 30 stressed accounts involving wilful defaulters.
This will act as a deterrent and enable banks to withstand pressure and interference from various quarters in dealing with the promoters for recoveries or sanctioning further loans, the committee said in its report tabled in Parliament on Wednesday.
For this, the committee recommended the government amend the RBI Act and other laws and guidelines.
Wilful defaulters owe PSU banks a total of Rs.64,335 crore or 21 per cent of total non-performing assets, (NPA), according to the report.
The sharpest increase in NPAs in the banking industry was observed in mid size corporates (Rs.25 crore—Rs.100 crore exposure to commercial entities) as they rose to 9.7 per cent in September 2015 from 6.4 per cent in March 2014.
Retail loans saw an industry-wise reduction to 4.7 per cent from 8.8 per cent.
The committee said it was alarming that as on September 2015, nearly Rs. 6.8 lakh crore worth of bank loans were in the ‘stressed category’ as against Rs.5.91 lakh crore in the previous year.
“The committee are not happy with the management of the problem on both fronts, at the level of the RBI (Reserve Bank of India) and at the level of the banks.”
RBI Governor Raghuram Rajan, SBI Chairperson Arundhati Bhattacharya, Hindustan Construction Company Chairman and Managing Director Ajit Gulabchand and Finance Ministry officials were among those who deposed before the committee headed by Congress Leader M.Veerappa Moily.
The banks have “evidently failed” to notice the early signs of stress on the loans disbursed by them. There is an urgent need for banks to reduce their stressed assets and clean up their balance sheets lest they become a drag on the economy, the committee said.
The committee also recommended that specially-tasked committees be mandated to continually monitor the status of large loan portfolios and submit periodical reports to government and Parliament on the findings.
Since diversion of funds by promoters to unrelated businesses and poor pre-sanction due-diligence have been cited as key reasons for bank loans turning toxic, the committee said it was of the view that forensic audits should be made mandatory for specific class of borrowers.
Total credit off-take of public sector banks as on December 2014 stood at Rs. 60,60,699 crore and as on September 2015, the net NPAs were Rs. 2,05,024 crore, according to the report.
The gross NPAs were Rs. 3,69,990 crore. Certain estimates, the committee notes, indicate that the gross NPAs could reach Rs. 4 lakh crore by the end of this fiscal year.
The stressed assets ratio (gross NPAs plus restructured standard advances to gross advances) for the system as a whole exceeded 11 per cent at the end of March 2015 compared to March 2014.
Taking the gross NPAs and the restructured advances together, the stress on public sector banks is 13.03 per cent to total advances as on December 2014 and 8.71 per cent as on September 2015.
The committee said that it noted with deep concern that despite various measures taken by the government and the Reserve Bank of India from time to time, the NPA problem “threatening” the stability of the banking system is far from over.
“Instead of declining, the cumulative net volume of NPAs of all banks and financial institutions are only increasing every year….Such high incidence of NPAs obviously raises serious questions on the credibility of the mechanism to deal with NPAs and stressed loans,” it said.
