While being hopeful that empowering the Reserve Bank of India (RBI) to direct lenders to initiate insolvency proceedings against defaulters is a step towards bad debt resolution, bankers and industry experts believe that a lot more needs to be done. Although banks can already move the National Company Law Tribunal (NCLT) against a defaulter, the ordinance will help them hasten the process.
Arundhati Bhattacharya, chairman, State Bank of India (SBI), said empowering the RBI with an explicit mandate should re-orient various stakeholders for effective NPA resolution. “The country and its banking system need to move quickly and decisively to take benefits of these enabling provisions,” she said.
According to Chanda Kochhar, MD & CEO, ICICI Bank, what is important in the time-bound manner is not to say that pick up all the top 50 cases (bad loans) and do it immediately. “I think the banks anyway would be very eager to do that. But, what is more important is to say that, you know, not just create a scheme, but take it to its logical end in a time-bound manner,” she said.
Kochhar said what the ordinance does is in a way empower the RBI to also say that if the banks have decided, then it can direct the banks to implement the joint lenders’ forum (JLF) decision in a time-bound manner.
Bankers also said despite the presence of debt resolution schemes, banks either don’t take decisions when they meet in the JLF or don’t approve it.
According to Papia Sengupta, executive director, Bank of Baroda, the NCLT was present even before the ordinance came into effect and therefore it is nothing new. “As far as the overseeing committee is concerned, yes, that is always a welcome step, but we have to look into the details of the ordinance. Secondly, when there is an oversight committee, banks have a little more comfort that whatever decisions are being taken, that is seconded by somebody outside the system,” she said.
Others believe that while in itself the ordinance does not solve the sour debt problem, it is an enabler that could help such banks which are not taking decisions on their own or in cases where the bank management is reluctant to go after an erring promoter.
Bobby Parikh, partner, BMR Advisors, said in a situation where banks must act, a constraining factor has been the concern that the bank management could be exposed to adverse action and the exercise of their judgment questioned. “If the ordinance enables bank management to address the NPA issue and alleviates concerns that they could be censured or victimised at a later date, it should hopefully help move the process along.”
Rajesh Narain Gupta, managing partner at SNG & Partners, said banks have not been taking adequate steps to resolve bad debts owing to the fear of subsequent investigations leading to delays. “However, it is still half baked as the immunity on the actions taken by bankers in good faith to resolve stressed assets-related issues is still not there. It will now depend on the RBI as to what extent and in what manner bankers are given the empowerment.”