Loan recovery branch to be shut for PSU bank boards, more power to officials- Economic Times
KOLKATA: The government has told public sector banks to delegate more powers to lower and mid-level bank officials to speed up debt recovery at a time rising non-performing loans are seen throttling the country's financial sector's growth and prosperity.
Fears that an already severe bad-loan crisis gripping public sector banks will get out of hand has forced the government to make it easier for banks to recover money.
In a letter to bank chairmen recently, a senior finance ministry official asked each bank not to let board approvals delay decisions regarding stringent recovery measures. "I was also surprised to hear that in certain cases, permission of the board is required before stringent recovery measures could be initiated," Rajiv Takru, financial services secretary told bank chairmen in a recent letter.
"I would like to know the position in your bank. It is not understood why such a provision should exist and what is the extra level of wisdom that could operate in a case at the board level when each passing day results in higher potential losses for the institution," Takru added.
Slew of layers slows PSU banks
Mounting NPAs at various public sector banks have affected investor confidence, eroded bank profitability and prevented them from pursuing growth opportunities. The government has also been forced to consider equity infusion after a sharp increase in recent years in restructured assets plus non-performing loans as a percentage of advances.
Gross NPAs of public sector banks increased from 2.28% in March 2010 to 4.01% in September 2012, Minister of State for Finance Namo Narain Meena informed the Lok Sabha last year. For the SBIBSE 1.02 % group, the gross NPA (as a percentage of gross advances) jumped from 2.82% in March 2010 to 5.16% in September 2012. The increase had as much to do with a slowing economy as with delays in loan recovery.
"The speed at which private sector banks act is much faster than government banks," said Akeel Master, partner and head of financial services at KPMG in India. "How soon banks convert their market intelligence into action becomes the defining factor. In public sector banks, different layers of decision-making are perhaps one of the reasons behind the slow reaction time," he added.
The case of Kingfisher Airlines is a classic example. Public sector banks are still sitting on non-performing loans of the defunct airline whereas ICICI,Takru said bank boards should allow officials at different levels to speed up loan recovery as board-level intervention may delay decision-making and increase the losses. "Any administrative system that delays decision-making and a quick response should be frowned upon," Takru said.The boards of the banks will be involved in some recovery cases.
Bank boards meet 10-15 times a year against a minimum six meetings prescribed, but decisions on loan recovery can't wait till then. The government has been telling banks to emphasise on loan recovery to boost profits as lending growth remains subdued and defaults pile up in a slowing economy. P Chidambaram told bank CEOs that banks should recover Rs 100 for every Rs 100 written off by them.
Recovery helps in two ways. First, it adds to profits by releasing funds kept as provision to cover bad loans. Second, the bank can use the recovered money for fresh lending.
Some banks, such as UBI, have taken steps like filing legal petition and sending loan recall notices to willful defaulters. UBI officials said they didn't take prior board clearance for such steps but are preparing a note to intimate the board about the recovery measures.
, a lender, managed to sell its Rs 430-crore loan to Kolkata-based Srei Infrastructure Finance last year itself.
All banks have recovery committees empowered to take action against defaulters. But government officials have discovered the boards still involve themselves in all decisions, defeating the purpose of the committees.
My comments
This refers to news item published today asking banks to activate and accelerate recovery process and to restrain bank boards to delay recovery proceedings.
Lacs of cases filed by banks against defaulting borrowers are pending in various courts of the country for decades. Lacs of certificate cases filed against small borrowers are never decided because most of Certificate Officers are either busy in other administrative jobs or are working in the hands of corrupt advocates fighting cases on behalf of defaulting borrowers. It is not possible for these corrupt administrative officers to treat the bank loan as national assets and safeguard them as their moral duty. Lacs of cases related to recovery of bank loans are languishing in civil courts, high courts and various district level court.
Thousands of cases related to bad debts involving more than Rs.10.00 lacs are filed in Debt Recovery Tribunals but the officers in these DRTs seldom decide the cases in stipulated time frame set by policy of disposal of cases by DRTs. Rather officials of DRT act in such a way as if they are agents of defaulting borrowers. They go on postponing the cases on flimsy ground and allows defaulters to sell off the assets and force banks to enter into compromise settlement sacrificing principal amount of loans and interest accrued thereon. As a result , bank management treat it wise to sacrifice lion's share of bank dues and motivate defaulting borrowers or prevail upon borrowers to settle the dues and get rid of DRT proceedings . There may be underhand dealing also in such compromise settlements. This is a separate issue. But it is true that Officials of these DRT do not act in tune with the spirit of setting of Debt Recovery Tribunals in the country.
Similar is the fate of Recovery under The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 SARFAECIA. In many cases bank management fail to take action against defaulting borrowers or take delayed action allowing the borrowers to dispose off the assets created by bank loan. But there are thousands of cases in which banks have initiated action under the act to take possession of mortgaged assets but district administration does not extend support in auction of these assets or in helping banks to take actual and physical possession of these mortgaged properties.Most of officials working in the office of District magistrate are bought by defaulting borrowers,.This is why thousands of cases are languishing in various offices for final and effective actions and banks are again constrained to enter into compromise settlement with borrowers and sacrifice considerable amount of public money either for self interest or for cleaning their balance sheet under the pressure of MOF
Obviously in all cases of defaults ,tax payer's money is sacrificed by banks to reduce bad debts. It is always the public money which becomes the victim of the corrupt and ineffective system.. Similar is the cases of all high value defaults , it may be electricity dues, or custom duty defaults, or income tax defaults or service tax defaults or sales tax defaults and so on.It is always the small and middle class defaulters who are more often than not taken to task to exhibit the efficacy of the system.
It seems therefore ridiculous that Ministry of Finance ask banks boards to activate their junior level officials to quicken their recovery steps until they activate their own administrative machinery and judicial system.
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