Give incentives to banks for timely taming of NPAs: RBI paper

Lenders coming together to salvage an account timely and collectively shall be incentivised through “better regulatory treatment of stressed assets”,while in cases where a resolution agreement cannot be reached,there shall be accelerated provisioning,the discussion paper said.

It also said borrowers who do not cooperate with banks in preparing the resolution plans should pay a price by suggesting higher interest rates in future loans.

“More expensive future borrowing for borrowers who do not co-operate with lenders in resolution,” it suggested.

“The RBI will create a database of directors on boards of companies classified as non-cooperative borrowers for dissemination to lenders,” it added.

The discussion paper,which was first announced by RBI Governor Raghuram Rajan last month,is open for public comments till January 1 next year.

Rajan has been very vocal about the rising tide of NPAs. He had said those promoters who fail to run companies properly and don’t service their debt have no moral right to continue in the promoters role.

He was backed by the Finance Minister P Chidambaram who had said,”we could not afford to have failing companies and prosperous promoters”.

Gross NPAs of banks have crossed 4 per cent as of the September quarter at Rs 2.37 trillion and are projected to cross 4.4 per cent or at Rs 2.9 trillion by the end of the fiscal,according to a report by rating agency Icra.

The banking system has been reporting higher stress due to a variety of reasons,including slowing of economic growth,projects getting stalled due to want of required clearances from the authorities or regulator,and also the elevated interest rates.

Top 30 loan defaulters of public sector banks (PSBs) account for more than one-third of total gross non-performing assets of state-run lenders.

“The ratio of top 30 NPAs as a percentage of gross NPAs,in respect of public sector banks,as on September 2013 is 35.5 per cent and for all banks it is 38.8 per cent,” Chidambaram said in a written reply to the Rajya Sabha last week.

The gross non-performing assets (GNPA) amount of top 30 accounts of public sector banks (PSBs) stood at Rs 72,174 crore,while for all banks it was Rs 91,667 crore at the end of September,2013.

In case of nationalised banks,top 30 defaulters contributed 43.8 per cent to the GNPA with Rs 55,663 crore.

The GNPAs of SBI Group,comprising SBI and its five associates,were worth Rs 71,620 crore at the end of first quarter of the current fiscal.

As bad loan pile is mounting so is the loan restructuring. As of the September quarter,the corporate debt restructuring (CDR) books together approved CDR worth Rs 2.72 trillion,according to Icra data.

“The boards of banks should put in place a system for proper and timely classification of borrowers as wilful or/and non-cooperative. Further,boards should review the accounts classified as such,” says the discussion paper ‘Early recognition of Financial Distress,Prompt Steps for Resolution and Fair Recovery for Lenders: Framework for Revitalising Distressed Assets in the Economy’.

It also suggests an overhaul of the restructuring process by having independent evaluations of large value recasts,which will focus on viable plans and fair sharing of losses or profits on the upside between the promoters and the lenders.

On the asset sale aspect,the discussion paper makes a slew of promises including liberalising the computation of losses,making it possible for banks to take the takeout financing or refinancing route and allowing leveraged buyouts.

Additionally,it promises steps for better functioning of the asset reconstruction companies and allowing specific companies and private equity funds to “play active role in stressed assets market”.

“There is an equal need for proper credit discipline among lenders,” the paper says,conceding that this subject is beyond the paper’s ambit.