Banks must take legal recourse early to prevent bad loans: Govt - Hindustan Times
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Banks must take legal recourse early to prevent bad loans: Govt

ByTimsy Jaipuria
Jul 08, 2016 06:00 AM IST

NEW DELHI: Concerned with rising non-performing-assets (NPAs) at banks, finance minister Arun Jaitley has asked RBI governor Raghuram Rajan to issue fresh instructions to lenders, asking them to invoke “all legal rights” to recover bad loans, even at the initial stage, and not wait for it to develop into a big menace. The finance minister has also sought more suggestions from Rajan to tackle the problem.

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During a meeting of the Financial Stability and Development Council (FSDC) on Tuesday, Jaitley discussed the bad-loan problem and said lenders should avoid delaying recovery measures. FSDC’s members include the RBI governor and heads of other financial sector regulators, such as, Sebi and IRDAI.

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“Jaitley has asked banks to avoid any lenient approach while dealing with recovery by extending repayment tenures and restructuring loans at revised patterns,” sources privy to the development told HT . “He also asked Rajan to tell banks not to wait till the last moment in any recovery case. He said banks have to be strict in their approach and should avoid situations, which can lead to serious cases of NPAs, at the beginning of the default.”

Banks can approach the Debt Recovery Tribunal for recovery of loans. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, a legal provision, also allows banks to auction properties to recover loans. There is also strategic debt restructuring, where RBI allows lenders to convert a part of their debt to majority equity in a defaulting firm, and take management control. However, banks often find it difficult to find buyers for such firms even after taking control.

Since court cases can drag on for several years, banks prefer to try out all options before taking legal recourse.

NPAs rose from 2.67 lakh crore (5.43% of gross advances) in March 2015 to 4.76 crore (9.32%) at the end of March 2016.

(With inputs from Mahua Venkatesh)

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