SC wants MBA grads, lawyers to prepare report on bad loans of public banks

The Supreme Court wants management graduates and lawyers from the Indian Institute of Management-Bengaluru and National Law School, Bengaluru, to prepare a report on the reasons behind the increase in bad loans in the country's public sector banks (PSBs) and why the recovery of the same had not materialised, reported the Indian Express.  

The bench, comprising Chief Justice of India T S Thakur, Justices A M Khanwilkar and D Y Chandrachud, asked the concerned institutions to handpick students for the report. The report, according to the national daily, will be prepared after the selected graduates visit the debt recovery tribunals and interview their judges. 

 

The report is supposed to suggest measures for recovering the money and stem the tide of non-performing assets (NPAs) at PSBs.

In a separate report, the Indian Express said that the apex court had raised concerns over the functioning of the debt recovery tribunals and their appellate bodies. Further, the Supreme Court has blamed inadequate recovery mechanisms for rising NPAs. 

Where do the PSBs stand?

Public banks saw an increase of nearly Rs 80,000 crore in NPAs in the three months ended September 2016, according to reports. (Read more)

As on September 30, gross NPAs of public sector banks rose to Rs 6,30,323 crore as against Rs 5,50,346 crore by June end.

This works out to an increase of Rs 79,977 crore on a quarter on quarter basis.

During the first quarter ended June 2016, PSBs had written off Rs 15,163 crore loans as against Rs 5,441 crore.

In the last fiscal, PSBs had written off Rs 59,547 crore, while their private peers had written off Rs 12,017 crore.

RBI believes the worst is over

While the Supreme Court has expressed its concerns over the matter, the Reserve Bank of India (RBI) said this month that the worst was over for the banking sector, overall. As reported earlier, the central bank believes that though the total bad loans in the system have swollen, the pace of the incremental addition has come down. (Read more)

“From the September quarter results announced by banks, we have seen that while there has been an incremental percentage of gross and net NPAs (non-performing assets), there has been marginal reduction in restructured advances and slight uptick in overall stressed assets in the banking system. But, the formation of incremental NPA has decelerated,” said RBI Deputy Governor S S Mundra at the bi-monthly monetary policy.

Deputy Governor N S Vishwanathan said the recent amendments to rules on restructuring schemes will aid recoveries and resolution and will also help in reducing accretion to NPAs. The central bank had earlier directed lenders that the last date for clean-up of the balance sheet stands at March 2017 and it was unlikely to be shifted.

What is the government doing?

As the apex court expressed it concerns over the state of PSBs with regard to their NPAs, Solicitor General Ranjit Kumar, according to the Indian Express, told the apex court that various steps – such as amending the laws governing the Debts Recovery Tribunals and Debts Recovery Appellate Tribunals – had been taken to strengthen the loan recovery process.

The government had constituted a five-member high level committee, which comprises the RBI's executive director and top brass from PSBs, to list out recommendations on banking reforms, including measures for recovering NPAs. Kumar, according to the news report, told the apex court that the committee was yet to submit its report on the matter. 

Earlier in the year, Minister of State for Finance Santosh Kumar Gangwar, in a written reply to the Rajya Sabha, had listed measures – like the enactment of the Insolvency and Bankruptcy Code, the amendment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act and the Recovery of Debt due to Banks and Financial Institutions Act – which were aimed at improving resolution or recovery of bank loans.

Further, he added that the RBI has come out with a number of tools such as corporate debt restructuring, the formation of the Joint Lenders' Forum, strategic debt restructuring scheme and sustainable structuring of stressed assets to fight NPAs.