Bankers say new move on NPAs to speed resolution process

Leading bankers today welcomed the NPA ordinance that amends the Banking Regulation Act and gives more powers to RBI to direct banks on resolution of stressed assets to speed up the recovery process.
Last night, President Pranab Mukherjee signed the NPA ordinance to amend the Banking Regulation Act, investing the RBI with more powers to direct banks to initiate insolvency and bankruptcy in case of defaults.
"Amendments to the Banking Regulations Act, coming on the heels of the enactment of the Insolvency and Bankruptcy Code and amendments to the Sarfaesi and the debt recovery tribunal laws indicate government's firm commitment to find a satisfactory solution to the NPA resolution problem," SBI chairman Arundhati Bhattacharya said.

She said empowering RBI with an explicit mandate, should reorient various stakeholders for effectively resolving the bad loans problem.
"The banking system must move quickly and decisively to take the benefits of these enabling provisions," she added.
Joining her, ICICI Bank chief executive Chanda Kochhar described the proposed law as a "big step" to resolve the bad loans pains as "in the last two years, there were very few decisions from banks in a coordinated manner as their focus was on NPA recognition and resolution was not happening."

"The ordinance will give a kick-start to the resolution
process. Though full resolution always takes time, since a resolution structure is created and a company is on the resolution path, from there it is only an improvement," Kochhar said.

Bankers further said the move will help in setting a clear direction on stressed asset resolution and will also build confidence among lenders in their decision-making process.
"There has been a continuous movement to ease out the NPA resolution process. With today's step, government is trying to bring in a more coordinated effort to resolve large value accounts," IDBI Bank executive director Mythili Balasubramanian said.
She, however, said a better picture would emerge once RBI issues the detailed guidelines.
United Bank managing director Pawan Bajaj said the initiative will be helpful in cases where joint lenders' forum is formed and the decisions are delayed due to non-cooperation of some lenders.

N S Venkatesh, executive director and CFO at Lakshmivilas Bank told PTI that the move will help banks take resolution in an orderly and speedy manner, which will ensure faster recovery."
Stating that the latest attempt should not become yet another tool in NPA fight, as the system has many tools at the disposal including a broad restructuring scheme, Kochhar said, "What's required is RBI should expand the jurisdiction of the oversight committee (OC) and empowers its to look at all forms of restructuring."
If done so, banks will feel more comfort in taking decisions. An equally important thing is that once a decision is taken, RBI should ensure that banks implement decisions. And the ordinance empowers RBI to do so, she said.

Kochhar also said the law should ensure that RBI creates more oversight committees with more powers and more people in them so that decisions are made faster.
"We've tremendous experience and depth of knowledge and I think RBI will be able to find the people," she said, adding that currently on an average an OC has only two members, which needs to go up manifold.
Addressing the media earlier in the national capital, Finance Minister Arun Jaitley said a list of some of the stressed assets is already with RBI and it is looking into it.
Jaitley said the ordinance was needed as RBI is required to be empowered to resolve specific stressed assets. Sale of assets, closure of non-profitable branches, reduction of overhead cost and business turnaround initiatives will be part of resolution process.

Non-performing assets have risen to about 17 per cent of total loans, the highest level among major economies. They are about 8.4 per cent of GDP, according to a report by Swiss brokerage Credit Suisse.