Following are the highlights of comments made by the Parliamentary standing committee on finance
New Delhi : The Parliamentary standing committee on finance has chided the Reserve Bank of India, along with the banking sector, for failing to identify and manage the growing non-performing asset situation in the sector.
“The committee are thus not happy with the management of the problem, on both fronts, viz at the level or the RBI and at the level of the banks,” the Committee said in the report submitted in Parliament. The RBI has not been able to stick to its own guidelines as far as stressed loans are concerned, the committee report said.
“The committee would, therefore, expect RBI to monitor and follow it up with the banks and financial institutions on a regular basis till concrete outcome materialises…as the committee would not like the RBI to be a passive regulator, when major lapses occur in banks,” the report said.
The panel was supportive of the RBI using its regulatory powers in asking banks to take punitive action against defaulters. It recommended publishing names of all wilful defaulters of each bank.
The committee fears that the “NPA problem confronting the financial sector” could upset the stability of the banking system. As on Sep 30, the net NPAs of the state-owned banks stood at 2.05 trln rupees, while, gross NPAs stood at 3.70 trln rupees.
The report also questioned the measures being taken by the RBI and banks in dealing with stressed loans, at a time when certain estimates indicate gross NPA may touch 4 trln rupees by the end of this fiscal year. The committee expects the central bank to initiate programmes aimed at improving project appraisal. “The committee would also recommend that specially empowered committee at all the three levels, namely, RBI, banks and the borrower should be setup to continually monitor the status of large loan portfolios,” the report said.
The panel expects these empowered committees to submit reports at periodic intervals to the government and the Parliament. “The committee also believe that RBI as a regulator should have its regulatory role well delineated and thus not have its Directors in boards of the banks as part of their management, as conflict of interest may lead to avoidable laxity,” the report said.
The committee suggested reviving Development Financial Institutions for long-term financing, especially to infrastructure projects, in order to minimise the impact of minor delays in projects, which create mismatch between deposit tenure and credit term.
“The committee also urge the government for allowing Infrastructure Finance Companies to purchase infrastructure projects turning into NPAs and keep them as standard assets,” the report said. The report added that infrastructure finance companies should be able to participate in equity, which will be accounted in the loan amount itself, and called on RBI to make requisite changes to allow this. The legal regime governing debt recovery needs to be overhauled, the committee report said.
The RBI needs to evaluate the different measures like One Time Settlement, Strategic Debt Restructuring and sale of bad assets to asset reconstruction companies, the report said.
RBI member on bank boards leading to conflict of interest
Wants RBI to allow banks to absorb NPA hit in phases; calls for amending RBI Act
to publish names of loan defaulters
Calls for forming empowered committee to monitor banks’ NPA
Fears that the “NPA problem confronting the financial sector” could upset the stability of the banking system
Net NPAs of the state-owned banks stood at 2.05 trln rupees,
while, gross NPAs stood at 3.70 trln rupees
Favours reviving Development Financial Institutions for long-term financing
