Vinod Rai reaches out to PMO on bad loans, suggests action plan


NEW DELHI: Banks Board Bureau chairman Vinod Rai wrote a strongly worded letter to the finance ministry and the Prime Minister’s Office highlighting the lack of action by banks on bad loans and suggesting a possible way ahead, said two officials with knowledge of the matter.

The letters were sent earlier this month after a meeting on bad loans at the PMO that was also attended by Rai.

Following this, finance minister Arun Jaitley, senior government officials, Reserve Bank of India governor Urjit Patel and two deputy RBI governors took stock of stressed assets in state-run banks last week and sought to firm up measures for quicker resolution, said one of the officials.

Rai declined to comment.

Vinod Rai reaches out to PMO on bad loans, suggests action plan

The government set up the BBB in February 2016 with a mandate to recommend candidates for the top posts at state-run banks and financial institutions. Last year, the government expanded its role to also help banks in their capitalraising plans and develop business strategies.
State-run lenders’ bad loans rose by over Rs 1 lakh crore in the first nine months of the current fiscal year to Rs 6 lakh crore on December 31, 2016.

Another government official confirmed that the finance ministry had received the letter, which outlined actions that can be taken to fast track the resolution process.

“It has been suggested that more powers should be given to the oversight committee. They should also be allowed to take decisions under other available mechanisms, including deep restructuring,” said the second government official, adding that deliberations are ongoing. The oversight committee was set up by RBI last year to review debt recasts.

The letter also suggested that the present S4A (scheme for sustainable structuring of stressed assets) mechanism should be further liberalised and top bank officials given a framework to follow.

“It is felt that in some cases banks are delaying the process on account of various issues, including citing the fear of vigilance agencies. The BBB wants bankers to be held accountable in such cases,” said one of the officials cited above.

The board is not in favour of a state-backed bad bank, given that the required skillset won’t be available in the public sector and that decision making will continue to be an issue, he added.

“The government has also not firmed up plans to set up a private sector bad bank, as the valuations of assets which will be transferred to such an entity may lead to political issues,” the person said.

On Wednesday, finance minister Arun Jaitley had told the first meeting of his ministry’s consultative committee that the government is taking sector-specific measures to deal with bad loans, especially the resolution of large debts. This may include setting up more oversight committees, as initiated by the Reserve Bank of India, for faster settlement of such cases.