Banks have initiated an exercise to sift through piles of non-performing assets (NPAs) — bad loans that do not yield returns — to assess which of these accounts have turned bad due to wilful defaulters.
The objective is to identify wilfully defaulting promoters and not given additional loans for any of their other companies.
The Reserve Bank of India (RBI) had, last month, asked banks to get tough with wilful defaulters but the latter said it was difficult to differentiate between a genuine and wilful defaulter in most cases.
The central bank has indicated that it may even undertake forensic audit of firms that default loan repayments of over Rs. 1,000 crore. Sources said the idea is to get a complete and true picture of what led to the situation.
“Banks have been directed to focus on recovery and identification of all wilful defaulters, we are going though the loan portfolios to assess the status of promoters and to see whether it is a case of wilful defaulters,” said M Narendra, chairman and managing director, Indian Overseas Bank.
According to RBI data, the level of bad debts in Indian banks have almost doubled since 2009 to over 4% of total loans, which also highlighted that debt restructuring has increased significantly.
“The Indian banking system is going through a tough patch and it cannot afford to let the level of bad assets go up any further, action must be taken immediately,” said Ashvin Parekh, senior adviser, EY and managing partner, Ashvin Parekh Advisory Services.
Banks have written off Rs. 1 lakh crore in advances since 2000, something that has raised an alarm.
RBI earlier said that over 90% of the write-offs were done for large corporate houses.
Cleaning out the closet
RBI last month asked banks to get tough with wilful defaulters
The central bank is likely to undertake forensic audit of firms that default loan repayments of over `1000 crore
Banks have said it is a difficult task to differentiate between a genuine and wilful defaulter in most cases
Rs 2,29,007 crore: Gross NPAs for 40 listed banks as on September 30, 2013
Rs 1,79,891 crore: gross NPAs as of March 31, 2013
Rs 1 lakh crore: Approximate amount of write-offs since 2000
90%: Percentage of total write-offs done for large corporate houses