No escape route

Calcutta, June 29: Bankers expect the budget to remove hurdles in the implementation of the Securitisation Act, 2002 — rendered toothless following a Supreme Court’s verdict allowing defaulters to appeal afresh without depositing 75 per cent of the loan.

Bankers feel that the government would not be soft on corporate defaulters at a time when a large number of farmers are reeling under debts and often paying back at the cost of their lives. The removal of the clause on depositing 75 per cent will have a cascading effect on asset reconstruction companies (ARCs) already functional or being planned.

“ARCs are set up so that banks sell the assets they seize under the Securitisation Act to them at a discounted price, thereby clearing their books. The removal of the clause will enable companies to directly go to debt recovery tribunals (DRTs) for appeal. The tribunals may not decide immediately. Banks will have to wait before they can actually take possession of the assets and sell them to the ARCs,” senior bankers said. They feel that the government would like to ensure a time-bound process so that the bank can sell or liquidate the assets seized before they lose value over time.

The bad debt of banks, estimated at Rs 100,000 crore, has a heavy bearing on their transaction costs, thereby affecting both their lending rates and profitability. “It will be a reformist budget. The finance minister will take ahead the reforms process already initiated in the banking sector,” Bank of Baroda CMD P. S. Shenoy said.

Loan recoveries as a problem for banks have festered for too long. Though a corporate debt restructuring cell has been set up for the financial restructuring of big companies, there is no such mechanism for the small and medium-scale enterprises.