Govt asks banks to strictly adhere to rule book

Sell guarantor's assets in case of default

  As a fall out of UB Group chairman Vijay Mallya’s whopping Rs 9,000 crore bank loan default, the government has asked the banks to strictly adhere to the rule book while lending huge amounts to individuals and be more vigilant with respect to corporate lending.

Focus has once again shifted to seizure/sell of guarantors properties in case the debtor defaults. The Finance Ministry has issued directions to the public sector banks to adhere to the rule strictly. Though this norm has existed in the Reserve Bank of India’s rule books, the lenders often overlook it while giving credit.

But now, after the latest case of wilful default by Mallya, and soaring non-performing asets of the banks have brought back government’s attention to the guarantor’s responsibility to repay the entire loan taken by the debtor.

The Finance Ministry has also asked banks to take action against the guarantors under the SARFAESI Act.

In case of loan default by a company, all its directors should be liable to repay the guaranteed loan with interest, according to the directive.

In 2012, the Supreme Court too had given a ruling that in case of a debtor defaults, it is the responsibility of the guarantor to repay entire loan.

The Finance Ministry has also called a meeting of senior officials of all public sector banks on Monday to discuss ways to tackle the whopping bad loans of government banks with special focus on wilful defaulters.

At the end of 2015, the NPAs of public sector banks were Rs 3.61 lakh crore whereas NPAs of private banks stood at Rs 39,859 crore. The PSU banks had 7,686 wilful defaulters with Rs 66,190 crore defaulted.

 Monday’s meeting with PSB officials will also deliberate on cautions against overemphasising bad loans as that halts genuine lending and hampers economic growth.
 Both, Finance Minister Arun Jaitley and RBI Governor Raghuram Rajan had recently warned banks against overstating the issue of NPAs and wilful defaulters.

Stricter lending

 Banks instructed to strictly adhere to rule book while lending
 Focus on seizure/sell of guarantors properties in case of default
 Action against guarantors under the SARFAESI Act
 NPAs of public sector banks in 2015 were Rs 3.61 lakh
 PSU banks had 7,686 wilful defaulters with Rs 66,190 crore defaulted