New Bad Loan Resolution Plan Gathers Pace

To deal with mounting bad loans afflicting banks, the government is likely to come out with a set of measures for faster resolution of non-performing assets within a fortnight.

Policy is being given final touches. It should be announced by the month-end or early next month, a senior finance ministry official said.

Broadly, the policy should contain the processes relating to haircuts and one-time settlement to be carried out by banks for faster resolution of high-value cases, the official said, adding that the big loan defaults constitute about 70 per cent of the total non-performing assets (NPAs).

This will provide a clear direction on the NPA front and the government will be able to take the bull by horns, the official said.

Finance Minister Arun Jaitley last week had said NPA resolution mechanism was being worked out with the Reserve Bank of India which will put enough pressure on borrowers to settle dues.

"You see, the amounts are large, but the numbers are restricted. It's not that hundreds and thousands of businesses have created this problem. The problem of big NPAs is confined essentially to 30-40, at best 50 companies, and therefore, those 40-50 accounts need to be resolved," he had said.

During resolution of NPAs, several issues like finding buyers and strategic partners come up, the minister had said.

"...I think you wait for a few days... There is some policy decision between the RBI and the government which we will implement, which will put adequate pressure on people to settle...," he had said.

Jaitley had gone on to say that "if you look at the whole structure, there are enough instruments available for settlements as far as the banking system is concerned. There are different legislations where action can be taken".

According to sources, the joint lenders' forum (JLF) is expected to be overhauled to facilitate quick decision making.

Instead of being a resolution mechanism, the JLF has become a delaying tool for big defaulters because as per the guidelines, restructuring needs approval of 60 percent of consortium lenders which more often than not proves to be elusive, sources added.

As per the existing JLF guidelines, if a restructuring package is approved by 75 percent of creditors by value and 60 per cent of creditors by number, other banks have to go along with it.

Besides, the sources said there could be provision which will make wilful default a criminal offence.

As far as haircut issues are concerned, bankers have a fear of the 3Cs -- CAG, CBI and CVC -- when they want to sell bad assets at substantially low value, the sources added.

The new NPA policy will try and address that concern, they added.