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Govt hopes for faster resolution of bad loans

Statesman News Service | New Delhi |

Finance Secretary Ashok Lavasa on Thursday expressed hope that amendments to the Banking Regulation Act will help in faster resolution of bad loans.

The Union Cabinet on Wednesday approved promulgation of an Ordinance to amend the Banking Regulation Act for faster resolution of the NPA crisis. While Lavasa did not share details of the proposed Ordinance, he said, "It is not possible for me to put down a number on how this will go down (NPA) but certainly we feel that these changes will make the system more effective in handling the bad loans and gradually with the professionalism that exists in our banking system and with the participation of the promoters themselves and the companies, we should be able to reach resolution in many of the cases." He also expressed confidence that there is sufficient appetite in the market for stressed assets.

In the past few quarters, most of the banks especially PSU lenders, have reported a sharp fall in profits as they set aside hefty amounts for losses on account of NPAs, which eroded their profits. Given the gravity of the problem, the government may ask banks to go for more “hair cut” or write offs for NPAs.

Most banks are also negotiating with various borrowers and providing a final one-time settlement offer to the top 50 defaulters. If they don’t find the response satisfied, then it will initiate the earlier strategy of ‘name and shame’ along with criminal action against the large willful defaulters.

Moreover, senior officials in the finance ministry believe that the earlier corporate debt restructuring (CDR) process should be revived as a way to speed up the resolution of stressed assets as the CDR mechanism may prove to be more effective than the joint lenders forum (JLF) due to the centralised decision-making built into it. He, however, added that the rules need to be tweaked on the earlier CDR mechanism. RBI Deputy Governor SS Mundra too recently said there is a need to further strengthen existing stressed asset resolution mechanisms.