| Govt mulls law to give banks more muscle |
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New Delhi, 11 August The finance ministry is considering anew ' wilful defaulter' legislation that will empower banks to induct new members on the boards of defaulting borrower companies and attach even those assets that had not been pledged. At a time when the asset quality of state- owned banks is deteriorating, the Reserve Bank of India ( RBI) is also planning harsher penalties for wealthy promoters of wilful defaulters. A committee headed by former law secretary VK Bhasin, with some finance ministry officials as members, has prepared draft of the Bill on ' wilful defaulters'. "Bank will be able to induct a new management if a company is unable to pay. The name- and- shame policy might be adopted for wilful defaulters. Assets on which security was not deposited could also be seized. For recovery of assets, banks should be able to look at other bank accounts as well. Defaulters often divert funds to other banks," said an official privy to the draft who did not wish to be named. Besides this new Bill, the finance ministry is revisiting recovery laws to make those more effective. Amendments have been proposed to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ( RDDBFI Act), and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( Sarfaesi Act), " to remove lacunae in these laws. The proposed Bill, as well as amendments to the existing Acts, are likely to give banks the power to reconstitute the boards of defaulting companies. "If you are trying to run a company with the same set of people you suspect of mismanagement, how much faith can you repose in them? If an independent set of people with the responsibility to run a company report to the bank, they would probably be more professional and fair. This will particularly help in case of promoter- run companies," said K V Karthik, senior director, Deloitte. Non- performing assets ( NPAs) of public- sector banks increased from 3.84 per cent of their assets (₹ 1,55,890 crore) as on March 2013 to 4.72 per cent (₹ 2,16,739 crore) at the end of March this year, mainly because of a sluggishness in domestic growth, a global economic slowdown and an uncertainty in global markets. Turn to Page 19 > CRACKDOWN ON WILFUL DEFAULTERS State- run banks NPAmanagement at the end of March of various years (₹ cr) 2009 2010 2011 2012 2013 2014 8,169 10,520 7,267 8,557 9,726 11,008 11,066 13,940 17,043 15,081 17,593 16,702 25,258 25,311 27,623 26,447 20,288 26,777 TOTALNPA REDUCTION 25,956 29,291 42,600 48,826 72,323 79,381 Upgrade Actual recoveries Write- offs POWER TO BANKS: To induct newmanagement on the boards of defaulting companies; to seize assets not put up as collateral INSTILLING FEAR: The name- andshame policy might be adopted; regular review of large- sized NPAs and wilful defaulters PROBLEM FOR PROMOTERS: Banks want RBI to allow them to recover dues from wealthy promoters of defaulting companies NPA CHECK: NPAs of public- sector banks rose to 4.72% (~ 2,16,739 crore) as at the end of March 2014, compared with 3.8% in March 2013 TOP DEFAULTERS: According to the All India Bank Employees' Association, top 50 defaulters account for NPAs of ~40,528 crore BAD- LOAN MANAGEMENT Source: Finance ministry, RBI |
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"Any adjournment in DRT proceedings due to absence of wilful defaulters will attract a huge penalty. A regular review of largesized NPAs and wilful defaulters will also take place," he elaborated. On its part, RBI is considering stricter guidelines to enable banks to declare promoters of defaulter companies wilful defaulters and recover dues from them. "At present, if a company has defaulted on a loan payment, banks cannot recover money from its wealthy promoters. Banks have asked the central bank to amend its master circular in this regard. That might happen shortly," said the chairman of alarge public- sector bank. RBI Governor Raghuram Rajan had last week said the central bank was trying to ensure wilful defaulters were prevented from accessing all kinds of funds. Currently, a company is declared a wilful defaulter if it fails to meet its payment obligations despite capacity to honour it, or fails to utilise the finance for the specific purposes it was taken for, or siphoned off funds. Promoters of such companies could be barred from floating new ventures for five years from the date the wilful defaulter's name is published in a list by RBI. |
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