Lok Sabha Question No. 4711 (UNSTARRED), answered on 2019-07-22
Subject: Bank NPAs
Ministry: FINANCE
Asked by: Girish Bhalchandra Bapat, Pritam Gopinath Munde, Shrikant Eknath Shinde

## GOVERNMENT  OF INDIA MINISTRY  OF FINANCE

ANSWERED  ON-22.07.2019

## LOK SABHA UNSTARRED QUESTION NO-4711

## BANK NPAs

## 4711. SHRI GIRISH BHALCHANDRA BAPAT: DR. PRITAM  GOPINATHRAO  MUNDE: DR. SHRIKANT  EKNATH  SHINDE:

## Will  the Minister  of FINANCE  be pleased to state:

- (a) whether  gross NPAs  increased  to 11.2 per cent in 2018-19 as compared  10.2 per cent in September  2017 which  has cautioned  against  further  deterioration, if so, the details  thereof;
- (c) whether  any  comprehensive  strategy  has been chalked  out by  the Government  to nab the defaulters,  if so, the details  thereof;
- (b)  whether   the  Government   and  RBI  are  readying   a  strategy   to  deal  with   the  bad  loan problem,  including  a one-time  settlement  scheme for weak  sectors and penal  action  against siphoning  off funds, if so, the details  thereof  and the plan  prepared  by  the Government  in this regard;
- (d) whether  the report  from banks  post completion  of forensic  audit  on big defaulters  has been received  by  the Government,  if so, the details  thereof  and the time  by  which  the action against  the defaulters  is likely to be initiated;  and

## ANSWER

- (e) the corrective  and preventive  measures  taken  by  the Government  to check  such type  of frauds in future?

## THE MINISTER  OF STATE  IN THE  MINISTRY  OF FINANCE (SHRI ANURAG  SINGH THAKUR )

(a) to (e): As per Reserve  Bank of India (RBI)'s data on global  operations,  aggregate gross advances of Scheduled  Commercial  Banks (SCBs) increased  from Rs. 25,03,431  crore  as on 31.3.2008  to Rs. 68,75,748  crore  as on 31.3.2014.  As per RBI inputs,  the primary  reasons for the spurt  in stressed assets have been observed  to be, inter-alia, aggressive  lending  practices, wilful   default/loan   frauds/corruption in  some  cases,  and  economic   slowdown.   Asset Quality  Review  (AQR)  initiated  in 2015 for clean and fully  provisioned  bank  balance-sheets revealed   high   incidence   of  Non-Performing Assets  (NPAs).   As  a  result of  AQR   and subsequent  transparent  recognition  by  banks,  stressed accounts  were  reclassified  as NPAs and  expected   losses  on  stressed  loans,   not  provided   for  earlier   under flexibility given   to restructured  loans,  were  provided  for. Further,  all such schemes for restructuring stressed loans were  withdrawn. Primarily as a result of transparent  recognition  of stressed assets as NPAs,  gross NPA  ratio  of SCBs, as per RBI data on global  operations,  rose from 4.28% as on  31.3.2015,   to  9.84%  as  on  30.9.2017.   As  a  result of  Government's   4R's   strategy consisting   of  recognition   of  NPAs   transparently,  resolution   and  recovery   of  value   from stressed  accounts,   recapitalising of  PSBs,  and  reforms   in  PSBs  and  the  wider   financial ecosystem,   the  gross  NPA   ratio   of  SCBs  has  since  improved   to  9.08%  as  on  31.3.2019 (provisional  data reported  by  RBI on 2.7.2019).

Comprehensive  steps have been taken  under the 4R's strategy  to deal with  the problem  of stressed/″bad″  loans and reduce  NPAs  of PSBs, including, inter-alia, the following -

- (2) Over the last four financial  years,  PSBs have been recapitalised  to the extent  of Rs. 3.12 lakh  crore,  with  infusion  of Rs. 2.46 lakh  crore  by  the Government  and mobilisation of over Rs. 0.66 lakh  crore  by  PSBs themselves  enabling  PSBs to pursue  timely  resolution of NPAs.
- (1) Change  in credit  culture  has been effected, with  the Insolvency  and Bankruptcy  Code (IBC) fundamentally changing   the  creditor-borrower relationship, taking   away   control of  the  defaulting   company   from   promoters/owners and  debarring   wilful   defaulters from the resolution  process and debarring  them  from  raising  funds from  the market.
- (3) Key  reforms   have  been  instituted in  PSBs  as  part   of  the  PSBs  Reforms   Agenda, including  the following:
4. (ii) Use of third-party  data sources for comprehensive  due diligence  across data sources has been instituted,  thus  mitigating  risk  on account  of misrepresentation and fraud.
5. (i) Board-approved Loan Policies of PSBs now mandate tying up  necessary clearances/approvals  and linkages  before disbursement,  scrutiny  of group  balancesheet  and  ring-fencing   of  cash  flows,   non-fund   and  tail   risk   appraisal   in  project financing.
6. (iii) Monitoring  has been strictly  segregated  from  sanctioning  roles in high-value  loans, and  specialised   monitoring agencies  combining   financial   and  domain   knowledge have been deployed  for effective  monitoring of loans above Rs. 250 crore.
7. (iv) As per extant  RBI instructions, banks  have Board-approved  loan recovery  policies that   also  cover  negotiated   settlements of  NPAs,   and  PSBs  have  One  Time Settlement   (OTS)   schemes in place under their  loan  recovery  policies.   To ensure timely  and better  realisation  in OTSs,  online  end-to-end OTS platforms  have been set up in  PSBs.

Enabled by the above steps, as per RBI data on global  operations,  the NPAs  of SCBs, after reaching  a peak  of Rs. 10,36,187  crore  as on 31.3.2018,  have declined  by  Rs. 1,02,562 crore to Rs. 9,33,625 crore  as on 31.3.2019  (provisional  data for the financial  year  ending March 2019),  and  SCBs  have  effected  record   recovery   of  Rs.  4,01,424 crore   over  the  last  four financial  years,  including  record  recovery  of Rs. 1,56,746 crore  during  2018-19 (provisional data).

A  comprehensive   strategy   has  been  put  in  place  with   a  view   to  deter   and  check   wilful defaulters   and  perpetration of  fraud,   including   measures   taken   against   siphoning   off  of funds,  and  to  help   realise   repayment in  cases  involving   wilful   default   or  fraud.   Measures taken  in this  regard  include, inter-alia, the following:

With  respect to report  from banks  post completion  of forensic  audit,  as per RBI's Master Directions  on Frauds,  banks  undertake  forensic  audit  and take  action upon  forensic  audit reports.  These Directions  do not envisage  submission  of such reports  to and action  thereon by the Government.

- (1) As per data reported  by  PSBs, till  31.3.2019,  suits for recovery  have been filed in 10,022 cases. In cases involving  secured assets, action  under  the provisions  of the Securitisation and Reconstruction  of Financial  Assets and Enforcement  of Security  Interest  Act,  2002 has  been  initiated   in  8,067  cases.  Further,   in  accordance   with   RBI  instructions of initiation of  criminal   proceedings   wherever   necessary,   FIRs  have  been  registered   in 3,154 cases.
- (2) To deter wilful  defaulters,  as per RBI's instructions, wilful  defaulters  are not sanctioned any  additional  facilities  by  banks  or financial  institutions, and their  unit  is debarred  from floating   new   ventures   for  five  years.   Further, vide Securities   and  Exchange   Board of ″ India  (Substantial   Acquisition   of  Shares  and  Takeovers)   (Second  Amendment) Regulations, 2016, wilful defaulters and companies with wilful defaulters as promoters/directors have been debarred  from accessing capital  markets  to raise funds. In addition,  the Insolvency  and Bankruptcy Code,  2016 has debarred  wilful  defaulters from participating in the insolvency  resolution  process.
- (4) Government  has issued 'Framework  for timely  detection,  reporting,   investigation etc. relating  to large  value  bank  frauds' to PSBs, for systemic  and comprehensive  checking of legacy  stock  of their  NPAs,  which  provides, inter-alia , that -
- (3) For  effective  action   against   wilful   defaulters   fleeing   Indian   jurisdiction, the  Fugitive Economic   Offenders   Act,   2018  has  been  enacted   to  provide   for  attachment   and confiscation  of property  of fugitive  offenders and has disentitled  them  from  defending any   civil   claim.   Further,   Government   has  advised  PSBs  to  decide  on  publishing photographs  of wilful  defaulters,  in terms  of RBI's instructions  and as per their  Boardapproved policy, and to obtain certified copy of the passport of the promoters/directors and  other authorised signatories of companies   availing   loan facilities   of  more   than   Rs.  50  crore.   Heads   of  PSBs  have  also  been  empowered   to request  for issue of Look  Out  Circulars.
- i. all   accounts   exceeding   Rs.  50  crore,   if  classified   as  NPAs,   be  examined   by   banks from the angle of possible  fraud,  and a report  placed before the bank's  Committee for Review  of NPAs  on the findings of  this investigation;
- iii. report  on the borrower  be sought  from the Central  Economic  Intelligence  Bureau in case an account  turns  NPA.
- ii. examination  be initiated  for wilful  default  immediately upon reporting  fraud to RBI; and
- (5) For enforcement  of auditing  standards  and ensuring  the quality  of audits,  Government has established the  National  Financial  Reporting  Authority as an independent  regulator.
- (6) In order   to  bring   transparency and  accountability in  the  larger   financial   system,   bank accounts   of  3.38 lakh   inoperative   companies   were   frozen   over  the  last  two   financial years.

The impact  of the above steps is reflected  in RBI's Financial  Stability Report  (FSR) of   June 2019. As per FSR, systemic  and comprehensive  checking  of legacy  stock  of NPAs  of PSBs for frauds has helped  unearth  frauds perpetrated  over a number  of years.

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