Banks have already recovered over ₹10.16 lakh crore bad loans in last nine years, a senior finance ministry official said adding that financial institutions have taken stringent measures to check any spike in non-performing assets (NPAs) by prohibiting units of wilful defaulters from accessing capital market or floating any new venture.
Comprehensive measures taken by the government and the Reserve Bank of India (RBI) to recover and to reduce NPAs, including those pertaining to corporate companies, has enabled an aggregate recovery of ₹10,16,617 crore by schedule commercial banks (SCBs) in last nine financial years, minister of state for finance Bhagwat Karad informed the Parliament.
The Narendra Modi government’s decision to stop evergreening of bad loans and unearth hidden NPAs through an Asset Quality Review (AQR) on April 2015 saw a sudden spike in gross NPAs to ₹10,36,187 crore by March 2018, a second official of the ministry said requesting anonymity. Before the AQR, the gross NPA was ₹2,16,739 crore (on March 31, 2014) as most of the NPAs were hidden in the balancesheet of banks due to evergreening, he said.
When banks restructure bad loans instead of transparently recognising them as NPAs is called evergreening. Such restructuring permitted lenders to extend the loan tenure or change payment terms to save their accounts from becoming NPAs.
{{/usCountry}}When banks restructure bad loans instead of transparently recognising them as NPAs is called evergreening. Such restructuring permitted lenders to extend the loan tenure or change payment terms to save their accounts from becoming NPAs.
{{/usCountry}}“Banks are following prudential norms strictly, hence unscrupulous corporates no longer have any influence in the Indian banking sector,” he said. Banks are strictly following Prudential Framework for Resolution of Stressed Assets, which was issued by RBI in 2019 to provide a framework for early recognition, reporting and time bound resolution of stressed assets, with a build-in incentive to lenders for early adoption of a resolution plan.
According to Karad, comprehensive measures were taken by the government and RBI to recover and to reduce NPAs. He said measures such as change in credit culture due to enactment of the Insolvency and Bankruptcy Code (IBC) in 2016. It is “fundamentally changing the creditor-borrower relationship, taking away control of the defaulting company from promoters/owners, and debarring wilful defaulters from the resolution process,” he said. To make the process more stringent, personal guarantor to corporate debtor has also been brought under the ambit of IBC, he added.
Under the PSB reforms agenda, comprehensive and automated early warning systems (EWS) were instituted in PSBs, he said. This data is used for time-bound remedial actions in the borrowing accounts.
“Wilful defaulters are not sanctioned any additional facilities by banks or financial institutions, and their unit is debarred from floating new ventures for five years. Wilful defaulters and companies with wilful defaulters as promoters/directors have been debarred from accessing capital markets to raise funds,” Karad said.