RBI is working on bad loan resolution, action soon: FM Arun Jaitley

New Delhi: The Reserve Bank of India (RBI) is in advanced stages of drawing up a list of bad loan cases to be referred to the National Company Law Tribunal (NCLT) for bankruptcy proceedings, using powers granted to the central bank under a 5 May ordinance amending the Banking Regulation Act, finance minister Arun Jaitley said on Monday.

Jaitley told reporters after reviewing the performance of state-owned banks with their chiefs in the capital that the number of cases going for bankruptcy resolution will rise once the RBI draws up the list.

So far 81 cases of bad loans have been referred to NCLT, which was given the powers to administer the insolvency and bankruptcy code (IBC) in June 2016. Out of the 81 cases, 18 were referred for bankruptcy by their creditors, the minister said.

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Under this process, lenders will refrain from taking possession of the physical assets of a defaulter for a specified period while the borrower tries to regain financial health and pay off loans. If turnaround efforts including management change does not help, the debtor goes for liquidation. Secured creditors get priority in the appropriation of proceeds from liquidation.

“Bulk of the non-performing assets (NPAs) are loans granted by consortiums of lenders. Their speedy resolution is required and RBI is at a fairly advanced stage of listing out those cases where resolution is required through the IBC,” the minister said.

“I am sure that over the next few months, pursuant to the new ordinance, effective action is taken and we move forward on the resolution of NPAs,” the finance minister, said without giving the total amount of bad loans that will come under the process.

The ordinance amending the banking law empowers the RBI to deal with specific bad loans and gives the government powers to authorize RBI to invoke the IBC against defaulters. RBI can also direct banks on its own to settle bad loans with defaulters. As of 31 December 2016, scheduled commercial banks had total stressed assets—gross non-performing assets including restructured standard assets—of Rs9.6 trillion, according to information given to Lok Sabha by the finance ministry in March.

Banks made an operating profit of Rs1.5 trillion in 2016-17 subject to various provisioning requirements and after the entire provisioning, net profit was Rs574 crore, the finance minister said. The government is also working on consolidation of more state-owned banks to achieve scale and operational efficiency, the minister said.

Jaitley said state governments opting for farm loan waivers would have to generate funds from their own resources.

The Maharashtra government on Sunday announced a farm loan waiver following in the footsteps of Uttar Pradesh, which had announced a Rs36,359 crore farm loan waiver for small and marginal farmers in April after the Yogi Adityanath-led Bharatiya Janata Party government came to power in state elections.

Madhya Pradesh has witnessed violent protests by farmers demanding debt relief.