Move comes after small banks petition the central bank and the finance ministry of getting a raw deal from big banks while deciding on corrective action on stressed loan accounts
The Reserve Bank of India (RBI) is planning to review the Joint Lenders Forum (JLF) platform, which sets in place a corrective action plan for stressed corporate accounts.
JLF is an early-stage recovery plan when lenders get together to decide on a corrective action when the principal or interest payment is delayed for 31 to 60 days. A loan turns a non-performing asset (NPA) when dues are unpaid for 90 days.
The move follows complaints received by both the central bank and the Ministry of Finance from smaller public sector banks (PSBs) of unfair deal. Under the JLF, a corrective action plan can be approved with consent of 75% of the lenders, leaving the smaller banks with a raw deal.
About 355 JLFs with the private and public sector banks have been formed so far.
An RBI official told dna that they had received complaints from the banks.
"RBI intends to review the JLF and see what fine-tuning can be done so that all the lenders have their due. RBI's intention was to see a mechanism set in motion before the loan turns bad and it becomes hard to rescue the account."
RBI, in February 2014, had directed that as soon as the account whether the principal or interest becomes due for 31 to 60 days the consortium of banks will have to form a JLF and formulate a corrective action plan (CAP).
A senior banker, representing a small bank, said, "We have complained to both the ministry and the RBI about how borrowers repay big banks while defaulting to smaller lenders when a JLF is formed. A group of big lenders agree to the restructuring without considering the views of smaller lenders. This is resulting in a lot of stress in our accounts. So, two or three large lenders who have bigger exposures can approve a restructuring without factoring in the demands of the smaller banks."
About 14 public sector banks have reported stressed accounts at the end of the third quarter ended December 31, 2014, where repayments are getting choked resulting in bad loans (non-performing assets) and restructured accounts accounting for 13.03% of their advances for the quarter ended December 2014.
A head of another small public sector bank said, "Big banks are unfair to smaller lenders. The ministry has asked us to cooperate with the JLF but we have objected to the terms if it does not take care of our interest."
According to the data compiled by the finance ministry, Central Bank of India has about 21.5% of its advances classified as NPAs or restructured assets, followed by United Bank of India with 19.04% of stressed assets and Punjab and Sind Bank with 18.25%. Punjab National Bank has 17.85 % of its advances classified as restructured or a bad loan and Indian Overseas bank has 17.07 % of its advances either in the restructured or bad loan category.
The gross NPAs of banks as of December 31, 2014 stood at Rs 3,00,611 crore. Of this, Rs 2,62,402 crore belongs to the public sector banks, while Rs 38,209 crore belong to the private sector banks, according data submitted in parliament by minister of state for finance Jayant Sinha.
Gross advances of the public sector banks during this period was Rs 46,49,843 crore while the total advances of the private sector banks was Rs 16,77,875 crore.
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