Lenders want panel to vet non-S4A cases for loan recast

Arrest of IDBI executives triggers such a move

The country’s lenders are treading a cautious path. Like the process followed for the scheme for Sustainable Structuring of Stressed Assets (S4A), they want the Overseeing Committee (OC) to vet all big-ticket loan restructuring proposals. 

The OC reviews the processes involved in preparation of the resolution plan to ensure reasonableness and compliance with RBI guidelines.

The move was triggered by the arrest of former top officials, including a past chairman, of IDBI Bank, for lending to the now defunct Kingfisher Airlines, despite the airline’s stressed loans. 

A senior State Bank of India (SBI) group executive said bankers want this as they do not want to face investigative agencies and legal action after they have retired. A senior public sector banker said “This is the view of bankers being put through the industry lobby group Indian Banks’ Association (IBA) to the Reserve Bank of India”. RBI is yet to respond to the proposal. 

The move would be more relevant for cases that need restructuring but do not meet stringent conditions for S4A. But, for this to happen, changes are needed in the present rules for restructuring. 

However, such a move could stretch the current OC to its limits. The two members of the committee are former State Bank of India chairman Janki Ballabh and former chief vigilance commissioner Pradeep Kumar. Till now four cases have been cleared, while six are under process, sources said.

A top executive of a mid-size public sector bank said this would increase work for the OC and IBA might have to form more such panels to cope with the increase in flow of cases. If the proposal got a nod from the banking regulator, adversely impact time taken for clearances and subsequent action under a recast plan, he said. 

According to the Financial Stability Report (FSR), released in December 2016 by RBI, the asset quality of banks deteriorated between March and September 2016. The gross non-performing advances (GNPA), or bad debts, ratio of banks increased to 9.1 per cent at the end of September from 7.8 per cent in March, pushing the overall stressed advances ratio to 12.3 per cent, from 11.5 per cent. 

Overall stressed advances include GNPA and restructured loans. Large borrowers registered significant deterioration in their asset quality, the report said. Under the S4A scheme, lenders have to present the resolution plan to the OC comprising eminent persons.