New NPA Fix should comfort bankers: Fin Min
Banks would still be responsible for taking commercial decisions on non-performing assets weighing down their balance-sheets, including possible haircuts, but scrutiny from the Reserve Bank of India (RBI) and advisories from oversight committees on the processes they adopt should comfort bankers, a top finance ministry official said on Monday.
The Centre felt the need to empower the central bank to direct banks to take more effective action for unwinding bad loan accounts as NPA resolution efforts failed even in cases where lenders reached an agreement, the official said.
As much as 70% of the non-performing assets in the banking system stem from accounts where multiple banks have lent to a borrower either as a consortium or individually, said Anjuly Chhib Duggal, secretary in the department of financial services under the finance ministry. All such bad loan cases above ₹ 100 crore are to be taken up by a joint lenders’ forum (JLF) as per RBI norms.
As per the new norms for JLFs notified by the RBI, just 60% of lenders by value of the loan have to reach a consensus on the course of action to be adopted for an NPA compared to a 75% consensus requirement earlier. The rest of the lenders are required to follow suit in such cases.
“If 60% of the bankers come to the conclusion that due process has been followed, and now it is time to take action, the decision on the haircut is implicit in that decision. RBI is coming into the process but the commercial decision is still taken by the banks,” Ms. Duggal said.
Stressing that an ‘overemphasis on the haircuts’ that banks might take in the process can create a scare for professionals who have to take these decisions, Ms. Duggal said that “it takes a certain amount of courage to do it and the only protection is you did it transparently, recording the decisions to explain ten years down the line.”
Oversight committees
The oversight committees for JLFs that RBI has been enabled to constitute, could look into the processes adopted by lenders to arrive at a corrective action plan for specific NPA cases. But their recommendations would be advisory, Ms. Duggal said.
“If the committee says the process is not followed, then bankers should go back and look at it in their own interest, (but) it’s an advisory. This entire system is to supplement the bankers in the process.”
“If so many people have together taken a decision, it is very difficult for anyone to game the system. The numbers offer protection… and opening up this process to the OC and the RBI… that is where the comfort comes.” .
“What happened was that even though loans had been resolved through JLF and a corrective action plan worked out, it could not be effectively resolved,” Ms. Duggal said, citing delays in paperwork by individual banks.
“There has been a delay in coming back – if a decision has been taken to restructure a loan or sell an asset to an asset reconstruction company, it applies for a particular point of time. If the timeline passed, the decision has to be renegotiated all over again.”
“We noticed was that many of the banks on whom the decision had become binding would come back and say ‘Yes, however, we have these conditions…’ Those were not the conditions that were agreed upon by the majority of the lenders,” she pointed out.
Now, if there is a delay in decisions by the JLF, the RBI has been given the power to direct banks to act and it has access to real time status of the various JLFs’ progress.
