Finance minister Arun Jaitley on Thursday declared that criminal and recovery proceedings will be initiated against defaulters of bank loans who divert money and stressed no one can claim equality before the law in not repaying loans to the banks. Jaitley was replying to a debate in the Lok Sabha, which passed a Bill to replace an ordinance through which the finance ministry had authorised the Reserve Bank Of India (RBI) to direct banks to resolve specific cases of bad loans by initiating resolution process under the new insolvency law, where required. The Banking Regulation (Amendment) Bill, 2017, seeks to amend the Banking Regulation Act, 1949 and replace the Banking Regulation (Amendment) Ordinance, 2017 that was promulgated in May this year.
Apart from asking banks to invoke the insolvency law, the move also empowers the RBI to issue other directions for the resolution of stressed assets, such as appointing committees to advise banks to resolve stressed asset issue. Speaking in the Lok Sabha, Jaitley said defaulting companies cannot ask why only they were being targeted when some other defaulters were being let free.
“No, that cannot be an argument. The system has the capacity to take only a certain number of cases. “Many non-performing asset (NPA) cases could be fraud, as money taken was diverted. These are not routine NPAs. Criminal proceedings will be carried out and bank will start recovery procedure for such accounts,” Jaitley said. Jaitley said the loans, which later turned bad, were probably given at a time when the economy was in a “boom” period and they seemed good investment proposals.
“Our laws were obsolete and impeding the recovery process… therefore this mechanism was set up. It will select defaulter, direct banks to move expeditiously against the defaulter. NCLT will dispose of the case within 180 days. This process will recover the public money, so no one should have objection,” he added. Jaitley said while the private sector concentrates on retail lending for car and home loans, public-sector banks have been much ahead in lending to infrastructure sector for the overall growth of the economy.
He said multiple options available for resolution of stressed assets. “At the end of the day, we need to change. They are national assets and we need to save the companies, have companies which are able to pay the banks,” Jaitley said. Referring to NPAs which amounted to more than 13% of advances in 2001, the figure came down to less than 3% in 2007-08, Jaitley said.
The sectors with most NPAs are steel, power, textiles and infrastructure, he added. While the debt recovery tribunals (DRTs) set up earlier liberalised the system, there were still some issues where honest bankers had to decide on loans. They had to operate in the context of the Prevention of Corruption Act (PCA), in which an honest decision could have been questioned later.
“Now, we have a complete situation… an oversight committee has been established which will overlook the settlements made and advise them on reasonable settlement,” he said. “These NPAs are continuing for last five-seven years, a stalemate situation had been reached. This process had to be broken.”