In a fresh crackdown against defaulters, the Serious Fraud Investigation Office (SFIO) has started probing details of certain non-performing asset (NPA) accounts of public sector banks in which, prima facie, there is a violation of rules. An established steel company, which is among the biggest defaulters, is on top of the SFIO radar for possible violation of rules, which includes diversion of funds for purposes other than what it had cited to get loans, official sources said. A diversified conglomerate, with interests ranging from consumer electronics to DTH services, is another such large defaulter whose loan accounts are also being looked into, the sources added. While 90% of bad loans could be a result of “genuine business failures or other concerns”, possible fraud can’t be ruled out in at least 10% of cases, one of the sources said. “The SFIO is getting into details of these accounts where there is a prima facie case for fraud,” he added. In case of any contravention of rules by these defaulters, appropriate action will follow.” As of December 2016, commercial banks had stressed assets (both gross NPA and restructured standard advances) worth Rs 9.64 lakh crore, with most in public sector banks. The massive bad debts have led to a “twin balance sheet problem” — over-leveraged companies and bad-loan-encumbered banks — severely denting investments in the economy. Sources had earlier told FE that the government could launch a crackdown on 5-10 big firms that are perceived to be among the top wilful defaulters of the 50-odd companies that account for the bulk of banks’ massive bad loans. Banking sources said the government is exploring all the possible angles on toxic assets.
There is a thinking that promoters of some of the big defaulters — whose criminal intent of avoiding payments wilfully and/or diversion of funds, prima facie, are established — should feel the heat. The SFIO action is one of the raft of measures that the government and the Reserve Bank of India (RBI0 have announced or are working on to resolve the bad debt issue. Last month, through an ordinance amending the Banking Regulation (Amendment) Act, 2017, the Centre authorised the RBI to direct banking companies to resolve specific cases of bad loans by initiating resolution process under the new insolvency law, where required. The central bank can now give directions on even specific cases of defaults, a practice it had generally avoided earlier. After the promulgation of the ordinance, the RBI, too, took a series of steps, including the one to make the joint lenders’ forum more effective, and directed banks to not break any rules and to meet all deadlines.
NPAs reached 9% of total advances by September 2016, double their level a year earlier. Importantly, more than four-fifths of the NPAs were in the public sector banks, where the NPA ratio had touched almost 12%. A sample of 39 top banks showed NPAs accounted for Rs 6,97,409 crore — or 9.3% of their advances — as of December 2016.