Joint lenders’ forum has not worked: Govt

MUMBAI: The government on Thursday said that the joint lenders’ forum, a consortium of banks formed to address bad loans, has failed to show desired results.

MUMBAI: The government on Thursday said that the joint lenders’ forum, a consortium of banks formed to address bad loans, has failed to show desired results.

HT Image

“We have the JLF mechanism and somewhere it seems to be a cold feet mechanism because it doesn’t seem to be working the way it ought to… There is need to speed up the process of finding solutions under JLF. Without it, businesses will not be competitive,” financial services secretary Anjuly Chib Duggal said at the annual general meeting of Indian Banks’ Association.

The JLF was formed in 2014 to identify and address bad loans by restructuring them.

Also speaking at the event, finance minister Arun Jaitley said: “The capacity of banks to support growth must never be allowed to dilute... Banking system’s ability to support credit and larger economic activity would always have to be maintained.”

Outgoing RBI governor Raghuram Rajan had recently warned banks against “unrealistic application” of stressed asset resolution schemes to postpone recognition of NPAs.

RBI is on a clean-up drive to tackle the rising bad loans that touched 12% in the June quarter, up from 10% in March for the banking sector.

To encourage further sale of bad loans, RBI released guidelines for sale of stressed assets on Thursday that said banks can offer assets to other banks and other financial institutions with capital and expertise, have an open auction for better price, make clear and transparent policies on valuation of assets with two valuation reports for those over Rs 50 crore and also restricts banks to invest in security receipts backed by their own stressed assets.

“In order to further strengthen banks’ ability to resolve their stressed assets effectively, it has been decided to put in place an improved framework governing sale of such assets by banks” the RBI statement said.

Duggal said, “Unless we address ourselves to resolving these assets we are not going to be competitive as we go along...Our ability to cope with the changes that are taking place is very closely linked to our ability to resolve assets particularly in consortium arrangements.”

The finance secretary also said India’s banking sector is a very happening sector and there could be further on-tap bank licencing for differentiated banks.

“We have two new universal banks, universal bank licenses are on tap… There could be further loosening of windows for starting small finance banks and payments banks,” she said.

RBI has given licence to 11 payment banks (3 opted out) and 10 small finance banks.

Duggal also revealed that the search for a chief executive officer (CEO) for the India Post payment bank is on and will be in place next month.