Task for Narendra Modi: Finance ministry draws up action plan to fix Rs 2.4 lakh-crore bad loan mess

Written by Arun S | New Delhi | Updated: May 22 2014, 17:48pm hrs
The finance ministry has identified three priority areas to tackle the Rs 2.4 lakh-crore bad loan problem with banks ensure quick action in solving problems related to consortium lending, establish more debt recovery tribunals (DRT), expedite clearances and credit disbursement to stalled projects with an investment of over Rs 12 lakh crore.

These would be taken up by the Cabinet secretariat for discussions with the Narendra Modi government, official sources told FE. The BJP manifesto had also promised to take steps to reduce bad loans.

On consortium lending, it has been found that despite many rules that can facilitate quick action, there has been delay on the part of lenders who are members of different consortia regarding recovery of bad loans, identifying frauds and declaring a borrower as wilful defaulter.

For speedy recovery, Sarfaesi Act was amended last year as per which to enforce the rights of lenders in case of consortium advances, consent of only 60% lenders by value is needed as against 75% earlier. The RBI, in its recent guidelines on Joint Lenders Forum and Corrective Action Plan, had specified timelines for cases where the lenders have chosen to recover bad loans, in addition to other timelines on restructuring and wilful defaulters. But the delays continue.

Former RBI deputy governor K C Chakrabarty had pointed out that an emerging but unwelcome trend in the banking sector was the rise in large value frauds (of above Rs 50 crore) in consortium lending accounts. He said in some cases, there was a lag of over 12-15 months in declaration of the same case as fraud by different banks.

This delay not only enables the borrowers to defraud banks, but also allows them enough time to erase the money trail and queer the pitch for the investigative agencies, he added. It was also difficult to fix staff accountability in consortium lending as it enables banks to shift the blame on others for wrongdoings.

Another concern is over increasing pendency of cases in DRTs despite the law, under which DRTs are set up, mandating that each case be disposed of within 180 days from the date of its filing.

At September 2013-end, there were around 39,000 pending cases involving over Rs 1.6 lakh crore in the country's 33 DRTs. Even the Supreme Court had pointed out the need for increasing the number of DRTs to reduce the workload of existing ones.

It also wanted the government to expedite the filling up of vacancies in DRTs and the implementation of the "e-DRT Project" to automate and improve DRT services.

On stalled projects, the finance ministry estimates that there are over 250 projects involving an investment of over Rs 12 lakh crore that have been stalled for reasons including delays in land and environmental clearances.

The Prime Minister's project monitoring group has so far facilitated the resolution of 151 projects involving an investment of Rs 5.28 lakh crore. Referring to the stressed loans (including bad and restructured loans) going over 10% of all the advances, the ministry has asked each public sector bank to regularly give it a list of stalled projects where the disbursement of loans have begun as part of a monitoring exercise.