Lok Sabha Question No. 3926 (UNSTARRED), answered on 2018-08-10
Subject: Stressed Assets
Ministry: FINANCE
Asked by: SISIR KUMAR ADHIKARI

## GOVERNMENT  OF INDIA MINISTRY OF  FINANCE DEPARTMENT  OF FINANCIAL SERVICES

LOK SABHA UNSTARRED  QUESTION  NO: 3926 TO BE ANSWERED  ON THE 10 th  AUGUST,  2018/SHRAVANA 19, 1940 (SAKA)

## QUESTION STRESSED ASSETS

## 3926: SHRI SISIR KUMAR  ADHIKARI:

Will  the Minister  of FINANCE  be pleased to state:

- (a) whether  Government  has taken  initiatives  to rescue banks  from huge debt of over Rs. 8,75,000 crore  gross Non  Performing  Assets (NPAs),  if so, the details  thereof;
- (c) if so, the details  thereof  and the reasons  therefor?
- (b) whether   the  Government   has  tried   to  dilute   the  mechanism   for  resolution   of stressed assets and the time  bound  process of repayment  schedule  policy  of Reserve Bank of  India (RBI); and

## ANSWER To be answered by

(a) to (c): As per RBI inputs,  the primary  reasons for spurt  in stressed assets have been observed to be, inter-alia, due to aggressive  lending  practices,  wilful  default  / loan  frauds /  corruption   in  some  cases,  and  economic   slowdown.   Asset  Quality Review   (AQR) carried   out  in  2015 for  clean   and  fully   provisioned   bank   balance-sheets   revealed   high incidence   of  Non-Performing   Assets  (NPAs).   Stressed  loans,   not  provided   for  earlier under flexibility given to restructured  loans,  were  reclassified  as NPAs  and provided  for expected losses. During  financial  year  (FY) 2017-18, all such schemes for restructuring stressed  loans  were   withdrawn. Primarily as  a  result of  transparent   recognition   of stressed assets as NPAs,  gross NPAs  of Public  Sector  Banks (PSBs) (as per RBI's offsite returns  global  operations  provisional  data,  as on 31.3.2018)  was Rs.  8,95,601 crore.

## THE MINISTER OF  STATE  IN THE  MINISTRY OF  FINANCE (SHRI SHIV PRATAP  SHUKLA)

To strengthen  banks,  unprecedented  recapitalisation of PSBs of Rs. 2,11,000 crore  was announced  in October  2017. Pursuant  to this,  Rs. 88,139 crore  was infused  during  201718 and Rs. 65,000 crore  has been budgeted  for 2018-19 for this purpose,  out of which Rs. 11,337 crore  has been infused  so far in  the current  FY.

A number  of initiatives  have been taken  to comprehensively address NPAs  in banks  and to strengthen  the mechanism  for resolution  of stressed assets and making  it timebound, while  empowering  RBI to direct  banks  to initiate  the process for timebound  resolution. The  Insolvency   and  Bankruptcy Code  (IBC)  has  been  enacted   to  create   a  unified framework   for  resolving   insolvency   and  bankruptcy matters.   The   Banking   Regulation

Act,  1949 has been amended,  to provide  for authorisation to RBI to issue directions  to banks to initiate  the insolvency  resolution  process under  IBC.  Under  this,  by  adopting  a creditor-in-saddle approach, with the interim resolution professional taking over management  of affairs of corporate  debtor  at the outset,  the incentive  to resort  to abuse of  the  legal   system has  been  taken   away.   This,   coupled   with   debarment   of  wilful defaulters  and persons associated  with  NPA  accounts  from the resolution  process, has affected a fundamental  change in the creditor-debtor  relationship. Further,  as per RBI's directions,   cases  have  been  filed  under IBC  in  the  National   Company Law  Tribunal (NCLT)  in respect of 39 large  defaulters,  amounting  to about  Rs. 2.69 lakh  crore  funded exposure,  as on 31.12.2017.  The rate of recovery  is dependent, inter-alia , on the quality  of the  asset  in  each  case,  the  potential   for  the  sector   concerned,   and  market  conditions. Prior   to  enactment   of  the  IBC,  options   available   to  banks   for  resolution   of  stressed assets were  restructuring of loans under various  schemes of RBI, a one-time  settlement by  way   of  compromise,   and  filing   of  suits  and  enforcement   of  decree  for  recovery thereafter.  These were  not time-bound,  and tapped either  only  the defaulting  borrower or a limited  pool of potential  buyers.  IBC has made resolution  of stressed assets timebound  and  transparent,   with   price   discovery   from a  wider   pool  of  buyers. Such  a transparent  and open resolution  process offers banks  a fair price  discovery  mechanism. The Securitisation  and Reconstruction of Financial  Assets and Enforcement  of Security Interest Act,  2002 has been amended  to make it more  effective with  provision  for three months  imprisonment  in case the borrower  does not provide  asset details  and for the lender   to  get  possession  of  mortgaged   property   within   30  days.   Also, six  new   Debts Recovery  Tribunals  have been established  to expedite  recovery.

In  addition   to  the  changes  in  the  financial   ecosystem,   reforms   have  been  initiated   in PSBs under the PSB Reforms  Agenda  announced  by the Government  in January  2017. These will  help avoid  recurrence  of a situation  of high  NPAs  and enable  resolution  / recovery  in respect of NPA  accounts,  PSBs have committed  to ensure  at least 10% share in  consortium  lending,  ring-fencing  of cash flows,  strict  enforcement  of conditions  of sanction,   engaging   specialised   monitoring agencies  for  loans  above  Rs.  250  crore   for clean post-sanction  follow  up, ensure  strict  role  segregation  and setting  up of stressed asset management  verticals  for stringent  recovery.