Banks can no longer ignore NPA paralysis

With the amendments to the Banking Regulation Act through an Ordinance route, the government has sent a very strong message to the Reserve Bank of India (RBI) and other banks that the “paralysis” caused to the economy by a staggering level of close to Rs 7 lakh crore of non-performing assets (NPAs) cannot be allowed to continue. In fact, having given legislative powers to the RBI to effectively intervene and act on each of the big-ticket defaulting accounts, the Finance Ministry has fixed the entire onus on the central bank to resolve the NPA mess in a time-bound manner. Finance Minister Arun Jaitley could not have been more direct in reprimanding the banks and the regulator when he said, “The object of this Act is that the present status quo can’t continue. And the present status quo is that not much was moving and therefore, a paralysis in the name of autonomy is detrimental to the economy and that really requires to be changed.” The amendments specifically empower the RBI to direct banks to resolve the NPAs by a set of schemes or else refer the cases for insolvency under the newly enacted Insolvency and Bankruptcy Code.

The key lies in the execution of the new scheme of things. All those alibis of `bank officials living in fear of investigative agencies with regard to commercial decisions taken in good faith’ have also been taken care of. Once the Joint Lenders Forum — which itself had remained non-functional in the absence of accountability of the bankers — comes out with a well-done proposal with regard to a particular NPA account, the RBI-appointed Oversees Committee would approve it. After the approval, the entire institutional set-up would stand behind the bank officials responsible for the resolution of the cases. Proposed changes in the Prevention of Corruption Act, exempting commercial decisions by public enterprises from several of the probes, would also help.

More than half of the NPAs belong to the 40-50 cases which should be tackled by
the regulator and the lenders with a full sense of accountability. Further, the ill-conceived idea of a `Bad Bank’ which would have become, in the words of the Principal Economic Advisor Sanjeev Sanyal, “a warehouse of toxic assets”, has been given a go-bye and the focus is on taking the issue head on. While the RBI works on detailed guidelines, it is expected that the one-size-fits-all approach will not be followed since each of the default accounts need a different solution.

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