975 (Part 1/10) Reserve Bank of India alone cannot help Banks to recover their NPAs (Non Performing Assets)

According to news reports, on 5th May 2017, President Pranab Mukherjee approved an ordinance to amend the Banking Regulation Act, 1949 to give more powers to the Reserve Bank of India to take action against defaulters to speed up recovery of Non Performing Assets (Bad Loans) of Indian Banks. The Ordinance is reported to give powers to RBI to 1) issue directions to any bank to initiate insolvency resolution process in case of default. 2) Issue directions to the banking companies for resolution of stressed assets 3) Specify one or more authority or committee that will advise banks on how to resolve their stressed assets.

RELATED LINKS

Click here to go to https://scroll.in/article/836743/with-more-power-to-rbi-to-tackle-non-performing-assets-could-indias-big-bad-loan-problem-end-soon

Click here to go to https://www.ft.com/content/62cba48c-3195-11e7-9555-23ef563ecf9a (Financial Times)

yb-a-donkey's views which are not intended to be imposed on others

This is a 1000 page subject. Cannot be covered in one blog post.

1. Government of India and the Reserve Bank of India, have done too little, and too late. Government may want to show that they are doing something drastic, to ward off media, public and Parliamentary criticism that it is soft on Corporate Borrowers, and industrialists while small and medium industrial, personal and agricultural borrowers are harassed for recovery of palty amounts. There is much truth in this criticism.

If the Government really takes some radical, effective measures, Large Industrial and Commercial Borrowers are not going to remain silent. They will use their influence-s and pull the strings on their puppet MPs, to change / moderate the Government's behavior.

If one or two industrialists are picked up at a time, probably others will remain silent. But if the whip is flaunted on all the large Borrowers on a war footing, they may go even to the extent of toppling the Government by purchasing MPs, or they may try to split the Ruling Party, by creating hopes in latent aspirants for power.

Question: How the step of "Initiating Insolvency Resolution Process" is not going to solve the problem.

Ans: Even before the Ordinance, Bank Boards, Bank Senior Managers have powers to initiate Insolvency Resolution Process. In case of insolvency of Companies, the Companies Act requires Creditors to apply to State High Courts for Liquidating the Borrower Companies, and if High Courts are satisfied, they will appoint an Official Liquidator to execute the Liquidation Proceeds. The Official Liquidator has to sell all the assets of the Borrower Company, collect all dues receivable by the Companies, and after that pay off the Creditors in the Priority Order Stipulated by Law. The whole procedure and process takes several years.

The Ordinance does not appear to take away the powers of High Courts, or superimpose the new powers of Banks, on the powers of the High Courts. The Ordinance just empowers RBI to issue directions to Banks to initiate Insolvency Resolution Process. It may probably mean that, RBI can give directions to Banks to apply to High Courts for Liquidation of Borrower Companies. Even before the Ordinance, to issue directions to Banks, as may be necessary from time to time. There is no 'open' information that Banks were hitherto disregarding the instructions of the RBI.

In case of most Corporate Loans Banks have full/part security, which they can take possession and sell directly under SARFAESI Act 2002.(Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002)

Before SARFAESI Act 2002 came into force, Banks were dependent on Courts, for selling the assets mortgaged / hypothecated to them. Now, there is no such need.

Approaching courts for Insolvency / Liquidation Proceedings will be useful only when Banks are Unsecured Creditors, or where the mortgaged / hypothecated securities are extremely inadequate, and bulk of the loan will become unsecured.

To continue adding / deleting / modifying. सशेष. ఇంకా ఉంది.