Finance Ministry readying plan to deal with menace of bad loans

To deal with the issue of bad loans on a war footing manner, the Finance Ministry on Wednesday charted out action plans including strengthening of asset reconstruction companies (ARCs) to deal with rising NPAs.

"ARCs would play an important role in cleaning up NPA (non-performing assets) mess...ARCs need to be strengthened to deal with the rising NPA in the system," Financial Services Secretary Hasmukh Adhia said here.

Various issues were discussed in the meeting, which was also attended by a senior RBI official, where actionable plans were charted out for strengthening of ARCs.

The immediate actionable points include, deciding uniform procedure for reserve price calculation method, he said, adding different banks calculate this in different manner which may be not be fair at times.

Besides, these companies also requested that if an asset turns bad in case of consortium lending then the assets should be sold in consolidated manner instead of individual basis for better valuation and recovery from stressed assets.

This can also be looked at, he said, adding other concerns were allowing trading of security receipts issued by ARCs and capital adequacy issues.

There has been demand of raising of investment cap of single promoter beyond 49 per cent, he said. At present, a single promoter can hold 49 per cent in an ARCs.

ARCs have around 82,000 assets under management in the form of security receipt.

As per an RBI data, gross NPAs of PSU banks have gone up to Rs 2,60,531 crore as of December, 2014.

The top 30 defaulters are sitting on bad loans of Rs 95,122 crore, which is more than one-third of the entire non-performing assets of public sector banks. In terms of percentage, it amounts to 36.50%.

Last week, Finance Minister Arun Jaitley had said although NPAs came down in the fourth quarter, it will take a while before a comfort level is reached.

"In the quarter ended March 2015, NPAs had come down from 5.64% to 5.2%. One quarter does not indicate a pattern. So, I would wait for some more time before realising what the pattern is," he had said.

Banks' assessment is that it will take them 2-3 quarters "to reach a somewhat greater comfort level", he had said, adding that they themselves are going to make an effort to reduce NPAs.

"We did ask each of the banks that have higher NPA levels to explain the reasons and those groups where defaults were higher," he had said.