Banks initiate crackdown on wilful defaultersTo recover dues from 50 top defaulters; finance ministry wants proceedings fast-tracked

Manojit Saha  |  Mumbai  March 26, 2013 Last Updated at 00:54 IST



Government-owned banks have started cracking the whip on wilful defaulters, with the finance ministry asking them to recover dues from the top 50 defaulters as the first step. Banks have been asked to furnish the information of the top-50 immediately.

Wilful defaulters are those borrowers who have defaulted on loan repayment to banks despite having adequate cash flows and a healthy net worth. The ones who have not utilised the funds borrowed for specific purposes and diverted those for other purposes have also been categorised as wilful defaulters by the Reserve Bank of India (RBI).

The finance ministry has asked chief executives of public-sector banks to take approval of their boards and begin proceedings for penal measures. The ministry has also asked banks to lodge formal complaints against the auditors of the borrowers with the Institute of Chartered Accountants of India, if they find the auditors were negligent or deficient in conducting the duty. (UNDER STRESS)



The ministry’s directions have come against the backdrop of a rise in “compromises” made by banks in writing off loans. According to data compiled by the ministry, the reduction in banks’ non-performing assets (NPA) due to compromises made during write-offs was 33 per cent of the total reduction as of December-end, compared with 31 per cent as of March-end. The total NPA reduction by public-sector banks as of December-end was Rs 41,672 crore.

The ministry has also mandated banks not to provide any additional facility to these companies and to bar their promoters for five years from availing of institutional financing for floating new ventures.

Following the ministry’s directive, banks have formed committees — comprising chairmen, executive directors and government nominees — to update their respective boards on the matter.

“The finance ministry has also directed us to obtain all necessary powers to recover dues from such defaulters,” said a senior executive of a public-sector bank.

The move has come within days of Finance Minister P Chidambaram’s comments on the corporate sector’s wilful defaulters. He had said after a meeting with chiefs of public-sector banks last week: “We cannot have an affluent promoter and a sick company.”

The government – the owner of public-sector banks – has been pushing for recovery of non-performing loans. Banks have also been asked to have a board-approved policy on loan recovery and to conduct a review of NPA accounts — of Rs 1 crore and more by the board of directors, and top-300 by the board’s management committee.

* Wilful defaulters are those borrowers whoh defaulted on loan payment to banks despite having adequate cash flows and healthy networth
* No additional loans facilities to defaulters
* Banks to bar promoters of defaulting companies from institutional finance for floating new ventures for a period of 5 years
* About a third of NPA reduction is due to comprise while writing off a loan
* Banks to form board level committee to monitor recovery process of willful defaulter

http://www.business-standard.com/article/finance/banks-start-crackdown-on-wilful-defaulters-113032500424_1.html

Banks must take firm steps to recover NPAs: FM

NEW DELHI, March 18, 2013, DHNS:

Soared to Rs 1.55 lakh cr as of Dec 2012

 Concerned over the rising bad loans of public sector banks, Finance Minister P Chidambaram on Monday said the lenders must take firm steps to recover non-performing assets (NPAs) without hurting industry.
 “While we understand why NPAs have risen and the restructured accounts have risen, we also wish the banks to take strong steps to recover their dues, I think the promoters have a duty to bring in additional money and the companies have a duty to pay their dues to banks. We cannot have an affluent promoter and a sick company,” Chidambaram told reporters after meeting heads of PSU banks and financial institutions. 

Slow economic growth and inability of companies to payback their loans have contributed to increase in non-performing assets of the banks. This has also given rise to large scale debt-restructuring by banks. 

Gross NPAs of PSU banks have risen from Rs 71,080 crore as on March 2011, to Rs 1.55 lakh crore as on December 2012. Chidambaram also said that as many as 215 infrastructure projects across five sectors worth Rs 7 lakh are facing delays, underscoring the slow pace of implementation of industrial projects in the country. 

He, however, said that certain projects in iron and steel and coal sector have started moving of late. The real problem exists in road and power projects. There are about 68 new projects in the road sector while 40 in power sector are either not moving or moving at a slow pace. “We have to get them going,” he added. 

Such projects usually face hurdles due to delay in clearance from multiple authorities, leading to time and cost overruns. Analysts estimate that poor infrastructure facilities in the country remove about two percentage points from gross domestic product growth. The government has set up a ministerial panel to fast-track such projects.

 Chidambaram also said that the finance ministry and the Reserve Bank of India are investigating the money laundering allegations made against three private-sector banks, but no such complaint has been made against any state-run banks. On the tight cash situation of banks, the finance minister said that he was in talks with the RBI governor D Subbarao and that he expected the RBI to take steps to address the liquidity shortage in the banking system when it meets to review its monetary policy on Tuesday.

 Chidambaram's remarks have renewed hopes among investors that the RBI will also cut the cash reserve ratio of banks to help them with adequate cash in hand.

http://www.deccanherald.com/content/319847/banks-must-take-firm-steps.html