A.S.I.B.A.S.

Banks may Get More Teeth in Fight against Defaulters

August 21, 2014

The finance ministry will back lenders in changing management of companies that wilfully default, tweak the rules of appointment of public sector bank chiefs, and make sure that bankers are not victimised. “A bona fide decision can also go wrong...we can't penalise a person for that. He has to be protected. Otherwise, no one will take decisions. So, we will protect the person where there is no collusion,“ GS Sandhu, secretary , financial services, said here on Wednesday . His comments come at a time decision-making at state-owned banks has slowed down amid fears that officers who sanction loans could be pulled up by the Central Vigilance Commission (CVC) if an account turns bad. In a separate development, Oriental Bank of Commerce and Dena Bank have initiated a forensic audit after it surfaced that Rs. 436 crore has been misappropriated from fixed deposits of customers. Soon after Syndicate Bank CMD SK Jain was arrested over allegations of bribe against loan, the Central Bureau of Investigation (CBI) had raised concerns over the high quantum of bad loans in the banking system, indicating collusion between lenders and promoters. Speaking to newspersons at the annual general meeting of Indian Banks' Association (IBA), Sandhu said the government is also working towards amending the Debt Recovery Tribunal (DRT) and Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act to arrest the surge in sticky loans. A change of management is very difficult in India, he said. “The tendency on the part of promoters is to stick to the unit. No matter what happens...even if they can't provide additional funding, or run it. But they will not move out. So we have to provide legal provision to force them to move out and bring in someone else who can bring additional capital, additional equity and run the unit and pay the money back to banks,“ he said speaking at the annual general meeting of IBA. He added that change of management will be applicable “wherever the borrower is not repaying deliberately...wilful defaulter. In those cases by legal force change of management can be done.“ On the appointment of PSU bank chiefs, Sandhu said the government is thinking of appointing CMDs for five years with a caveat that they will have to step down after three years for nonperformance. He was categorical that the government will not endlessly infuse capital to keep weak banks afloat. “Whether it is a private or public sector bank, it has to manage its affairs by generating revenues. The government cannot endlessly keep on providing capital,“ he said. The Reserve Bank of India has estimated that private and public sector banks will require Rs. 4.75--5 lakh crore by 2018 to adhere to Basel III norms -the global regulatory standard on bank capital adequacy ratio. – www.economictimes.indiatimes.com : http://corporatelaws.taxmann.com/topstories/222330000000003647/banks-may-get-more-teeth-in-fight-against-defaulters.aspx