Refer all high-value NPA resolution cases to overseeing committee: Finance Ministry to PSBs

The Finance Ministry has asked public sector banks to approach the newly constituted overseeing committee (OC) for resolution of all high-value bad loans and not just accounts considered under S4A.

This was conveyed to the lenders at last month's meeting between Finance Minister Arun Jaitley and the heads of PSU banks.

According to ministry sources, some banks were under the impression that only cases under the Scheme for Sustainable Structuring of Stressed Assets (S4A) are to be reviewed by the OC.

There were some information gaps which have been addressed in the meeting with the Finance Minister, sources said.

A two-member OC, which includes former State Bank of India chairman Janki Ballabh and former chief vigilance commissioner Pradeep Kumar, has been set up by the Indian Banks' Association in consultation with both RBI and vigilance and investigating agencies.

The OC has been created to ensure that the entire exercise of NPA resolution is carried out in a transparent and prudent manner.

Gross NPA of public sector banks has surged from 5.43 per cent (Rs 2.67 lakh crore) in 2014-15 to 9.32 per cent (Rs 4.76 lakh crore) in 2015-16.

Meanwhile, the RBI has said it will come out with modified guidelines by this month-end to allow a portion of sustainable bad loans to be treated as standard asset in a bid to effectively deal with high NPA problem.

The Reserve Bank has put in place the 'Scheme for Sustainable Structuring of Stressed Assets' (S4A) in order to provide an avenue for reworking the financial structure of entities facing genuine difficulties and requiring coordinated financial restructuring.

The scheme provides flexibility in restructuring, which may involve material write-down of debt and/or making large provisions, RBI had said in the fourth bi-monthly monetary policy review for 2016-17.

Banks that have taken up cases for resolution under the S4A had represented that the asset classification norms under the S4A may be reviewed to make the scheme more effective.

Accordingly, it is proposed to allow that portion of debt determined to be sustainable to be treated as a standard asset in all cases, subject to certain conditions, it had said.

Detailed guidelines in this regard will be issued by end-October 2016, it had said.