Lok Sabha passes bill for speedier recovery of bad loans, seeks to amend four laws

 Against the backdrop of Vijay Mallya episode, the Lok Sabha on Monday passed a bill that provides for expeditious recovery of bad loans by the banks, with the government saying the country cannot have a banking system where people take loans and do not repay.

The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016, passed by by voice vote, seeks to amend four laws -- Sarfaesi Act, DRT Act, Indian Stamp Act and Depositories Act. Finance Minister Arun Jaitley said the banks must be empowered to take effective legal action against defaulters and the insolvency law, securitisation law and DRT law are steps in that direction.
At the same time, he assured the House that banks will take a compassionate view on education loan defaults but there will be no waiver.

Present law to simplify procedures: Arun Jaitley 

"The present law simplifies the procedure by which there will be quick disposal of pending cases of banks and financial institutions by Debt Recovery Tribunal," Jaitley said. Pitching for speedier recovery of debt, he said, "We cannot have a banking system where people take loans and do not repay." He said the changes in the law are aimed at simplifying the procedure for quick disposal of pending cases.

The move assumes significance as it comes against the backdrop of the episode involving liquor baron Vijay Mallya, who owes Rs 9,000 crore to banks, but has left the country to take refuge in England. Jaitley said if loans taken are not repaid, the Centre or state budget will have to provide for the waiver. "If loans are to be waived off, someone has to step in. We should not create a culture that I have taken a loan and I can sleep well and banks should be answerable," Jaitley said.

On concerns expressed with regard to education loans, the Minister said some compassion has to be shown if someone is unemployed and till he gets a job, but the loan cannot be written off. "... Write off will put banking structure into a position where banks are not able to extend loans," he said.  Jaitley said farm land has been kept out of the purview of the act. The bill, which was introduced in the Lok Sabha in May, aims at faster recovery of debt by PSU banks, which are grappling with Rs 4 lakh crore of NPAs and Rs 8 lakh of stressed assets. The bill was then referred to the Joint Parliamentary committee.

Loans must be serviced properly

The Finance Minister said loans given by banks induces economic activity and supports growth, but what is important is that the loans must be serviced. When the loans are not serviced for 90 days, they become NPAs, he said, adding "the banks are often faced with Hobson's Choice". The NPA, he said, may arise because of several reasons, like economic downturn, wrong decision on part of the banks and siphoning off of funds.
He said even the loans which are rightly given may turn bad because the business cycle take an adverse turn.

He said sectors like steel, power, infrastructure, highways and sugar turned bad in the past and government as well as the RBI have been taking steps to improve the situation. A very large part of Rs 8 lakh crore of stressed assets is because of discoms, which is now being addressed through the UDAY scheme, he said. Observing that it is important to keep units facing debt problems running and preserve jobs, Jaitley said RBI has been taken steps to improve the situation through corporate debt restructuring scheme.

To a member's demand of extending Sarfaesi to systematically important NBFCs, Jaitley said the draft notification has already been issued and the government is waiting for stakeholder comments and will then issue the final guidelines Around 70,000 cases involving more than Rs 5 lakh crore are pending in Debt Recovery Tribunals (DRT) and the proposed amendments would facilitate expeditious disposal of recovery applications. Securitisation law enforced in 2004 significantly helped in reducing non-performing assets from almost 13 per cent to 2-3 per cent, Jaitley said.

Members express concern over rising bad loans 

The legislation proposes to give the RBI powers to regulate asset reconstruction companies, prioritise secured creditors in repayment of debts and provide stamp duty exemption on loans assigned by banks and financial institutions to asset reconstruction firms. Highlighting that the objective of the Bill is to improve the ease of doing business in the country, he said, "I had announced several reforms with regard to Asset Reconstruction Companies (ARCs) in the Budget this year because as part of enforcement of securities these companies have very important role to play."

Therefore, those norms have been liberalised which have placed as part of the amendments, he added. Initiating debate on the bills, Sushmita Dev (Cong) said rising bad loan is a matter of concern.
In order to contain bad loans, she said, there is need for capacity building with regard to credit appraisal. Quoting Standing Committee of Finance report, Dev said the stressed assets have crossed Rs 8 lakh crore in the banking system.

G S Shekhawat (BJP) said the bills have provision of 60 days' time limit for granting permission by the District Magistrate or Chief Metropolitan Magistrate for possession of assets of defaulters.
DRTs are to be made online and ARCs would be strengthened, he added. Saugata Roy (TMC) hoped steps are taken to ensure that Mallya-like incidents does not take place anymore as he said around Rs 1.14 lakh crore worth bad loans were written off by public sector banks during 2012-2015 period.

Flagging concerns about increase in non-performing assets with banks, he said the banking industry is in the "worst crisis" especially with public sector lenders writing off hefty amount of bad loans.
"Things are very very wrong with banks...," he said, adding that having an Act alone would not ensure that Non-Performing Assets (NPAs) go down. Stating that the Finance Minister believes in bringing laws, Roy said mere passing of law does not help anybody and that political will seems to be missing.

The Finance Minister should be more concerned about banks than the GST, he added. Without taking names, Roy said the controversy created by a BJP MP about the RBI Governor was "totally unwarranted" and that it "lowered our prestige in the international market". The RBI Governor is leaving now and it should not have happened, the TMC member said.

Tatagatha Satpathy (BJD) said even though people talk about fiscal prudence, there is "fiscal irresponsibility" as taxpayers' money is used to bail out financial institutions and public sector entities.
According to him, bad loans are being written off the balance sheets of banks so that it is also out of the purview of the Parliament. About money being set aside by the government for recapitalisation of banks, he said it should be called "bailout".

The Asset Reconstruction Companies (ARCs) would have a field day and it would be like a wolf among the sheeps, he said and what would happen if the ARCs themselves fail. Referring to the UDAY scheme for restructuring debt of power distribution companies, he said government is trying to fool people. Satpathy asked what is the legacy being left for the younger generation as the "nation is watching" even as he quipped, "I am not talking like a TV anchor".

'Fiscal responsibility towards tax-payers'

Anandrao Adsul (Shiv Sena) said it is the proper time for passing the Bill, which would help banks in dealing with the bad loans problem. Jaydev Galla (TDP) said the NPA situation is very serious and that solution to a problem is important than just legislative competence. There are many vacancies at the Debt Recovery Tribunals and its appellate tribunals, he said and asked the government what steps are being taken to address the issue.

K Vishweshwar Reddy (TRS) said intention of the Bill is good but asked if can be implemented. Badaruddoza Khan (CPI-M) also said NPAs are increasing faster than before and wondered how money would be recovered if a Kingfisher Airlines like situation happens. He also cited the example of the auction of Mallya's private jet, to recover debt, not getting much response.

M Rajamohan Reddy (YSRCP) said the bill will improve the ease of doing business by providing a fast-track mechanism to deal with the bad loans of the bank.
Reddy also suggested the Centre should fulfill all promises made at the time of bifurcation of Andra Pradesh and grant it special status.

Jagdambika Pal (BJP) expressed the hope that the changes in different Acts would help in reducing the non performing assets (NPAs) in the banking sector which are reported to be over Rs 5 lakh crore.
Supporting the bill, Shailesh Kumar (RJD) said the recovery of the bank loans should be made effective. Kaushalendra Kumar (JD-U) said the law will help in bringing down NPAs of the banking sector.
Dushyant Chautala (INLD) regretted that big corporate defaults manage to escape while the poor people are harassed by bnks.