Government asks PSU banks to do forensic audit of defaulters, and, may also shuffle heads of PSU banks

Government asks PSU banks to do forensic audit of defaulters, and, may also shuffle heads of PSU banks

FPJ BureauUpdated: Thursday, May 30, 2019, 08:18 AM IST
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The government is considering a proposal to shuffle the heads of some public sector lenders, including IDBI Bank, to improve their performance and resolve the issue of bad loans. “There is a proposal for swapping of MD level position in banks which is being looked into. Final decision would be taken after careful consideration,” said a source.

There are also talks of the CEO and managing director of IDBI Bank, Kishor Kharat, being moved to another bank. The Appointments Committee of the Union Cabinet, headed by Prime Minister Narendra Modi, will take a final decision on this issue.
IDBI Bank has largest presence in joint lending and has a critical role in many Corporate Debt Restructuring (CDR) proposals, sources said.

According to a Parliamentary Committee report, although IDBI Bank has been a pioneering institution in the financial sector of the country, in 2015-16 it registered a loss of Rs 3,664 crore as against a net profit of 873 crore in 2014-15.
The bank has also seen decline profits on a sequential basis — Rs 2,031 crore in 2011-12, to Rs 1,882 crore and Rs1,121 crore in 2012-13 and 2013-14, it said. The decline in profits of IDBI Bank could be attributed to increase in Gross Non-Performing Assets, loan write-offs and poor financial results, Committee on Petitions said in its report.

It has recommended that the Finance Ministry should effectively liaise with the IDBI Bank for formulating a Transformational Plan with a target of putting the stressed projects back on track. It has suggested bringing down Gross NPAs to 3 per cent and Net NPAs to zero per cent by 2018-19, selling of non-core assets to fund the growth.

To further counter the issues of bad loans the government has asked PSU banks to carry out forensic audit of defaulters. According to a report in Indian Express the finance ministry sources told The Indian Express that state-owned banks have been asked to conduct a forensic audit of top 50 loan defaulters to separate genuine cases of business failure from those where funds have been diverted.

According to the report Finance Ministry Arun Jaitley met the top RBI officials and bankers in the previous week and a plan has been chalked out. However the government is not likely to set up a state owned Bad Bank to take over NPAs from state owned banks.

The Department of Financial Services has been asked to review the existing framework of private asset reconstruction companies over the next few months and submit a report. The government is also looking at a possibility of large scale auction of bad debts.
The government also plans on encouraging banks to offer one time settlement of loans with a haircut. Precautionary steps have been taken that the bankers do not have to face the backlash of one time settlement in future.

During a meeting of the Parliamentary Consultative Committee Wednesday, Jaitley had said that dealing with bank NPAs is a challenging task and that the government was considering several oversight committees to help with resolution of bad debts.
The core problem of bad debts is with very large corporates, predominantly in the steel, power, infrastructure and textile sectors, Jaitley said.

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