New Delhi, Dec. 10: Corporate defaulters are being offered a second chance to pay up: The Reserve Bank of India is planning to cobble another scheme offering a one-time settlement of their dues in an effort to bring down the Rs 70,000-crore bad debt swilling about in the banking system.
The scheme was tested two years ago but met with very little success. However, the RBI is betting that it will be able to strong-arm defaulters into paying this time around, because of the Securitisation and Reconstruction of Financial Assets Act passed by Parliament that allows banks to seize and sell defaulters’ property.
Armed with the legislation, banks have been pursuing defaulters vigorously and several companies like Mardia Chemicals have already seen some of their assets seized to recover their dues. Mardia has, however, approached the Supreme Court which has stayed the debt recovery proceedings till such time that the Act receives the President’s approval and comes into force.
“We are working on the structure of the scheme and will announce it soon,” RBI deputy governor Vepa Kamesam told a gathering of reporters but refused to divulge details.
Bankers said the soon-to-be-introduced One Term Settlement Scheme (OTS) will be similar to the one introduced in 2000-01. “In view of the recently introduced Securitisation Bill, the OTS will force defaulters to come to the negotiating table with banks,” a senior bank official said. The current average NPA level is around Rs 70,000 crore while net NPAs are around Rs 33,000 crore.
“The Bill will not only stem the rising NPA level but also help lower the current NPA level by around Rs 5,000-6,000 crore in the current fiscal,” Indian Bankers’ Association chairman Dalbir Singh said earlier.
The deputy governor was in town to work out strategies with top government officials and bankers for infusion of fresh capital in the small-scale industries (SSI) sector which constitute 95 per cent of the industrial units in the country. The sector has been facing financial problems due to the high cost of funds and delays in getting loans.
Kamesam also said the apex bank is working on guidelines for running an asset reconstruction company, which takes care of the NPAs of a financial institution. Several institutions with high NPA levels such as the State Bank of India, Industrial Bank of India and ICICI Bank have floated Asset Reconstruction Company of India Ltd, while IFCI has set up Asset Care Enterprise to take care of its NPAs. He added the apex bank will divest its stake in SBI and is also looking at ways and means to boost credit offtake in the small-scale industries sector.
“The government is considering our proposal for legislative changes that will enable us to divest our stake in SBI which is around 51 per cent,” Kamesam said.
The meeting was attended by finance secretary S. Narayan, deputy chairman of the Planning Commission K. C. Pant, officials of the small sector industry ministry, secretary in the Prime Minister’s Office (PMO) and several bank chiefs.
Kamesam said banks need to work out strategies for higher credit offtake in the SSI sector since there is enough money supply (M3) in the banking system. “The RBI will not tell the banks to reduce interest rates to pump funds in the SSI sector as top companies get credit at the prime lending rate of 11 per cent,” he said. “Therefore, I think there is need for a relook on the rates and interest spreads.”
The RBI, in its monetary and credit policy slashed the bank rate—the bench mark at which it lends to commercial banks—by 25 basis points to 6.25 per cent, while the repo rate the rate at which the RBI borrows from banks was reduced by the same margin to 5.5 per cent. The RBI has, in the last three years, reduced the bank rate four times to boost credit.
Top UTI defaulters
Essar Steel, the Jindal group, Mukand and Videocon International are among the top 10 defaulters who are yet to pay their dues to the Unit Trust of India, the Rajya Sabha was informed today, adds PTI.
While giving a list of top 50 such defaulters, minister of state for finance and company affairs Anandrao V. Adsul said in a written reply that the amount (principal plus interest) owed by the top 10 defaulters totalled about Rs 640 crore.
“To get back its dues, UTI has taken measures like setting up special recovery groups and an ARC to acquire its non-performing assets,” the minister said.