Press Information Bureau

Government of India

Ministry of Finance

20-December-2012 19:22 IST

The objective of restructuring is to conserve valuable financial assets in a downturn, revival of entities and ensuring safety of the funds lent by the banks. Although, the Gross Non-Performing Assets (NPAs) and restructuring of loans of Public Sector Banks (PSBs) have shown an increasing trend, at system level, they do not indicate any systemic vulnerability. There is no specific data with the Reserve Bank of India (RBI) about restructured corporate loans turning into NPAs.

To improve the health of financial sector, to reduce the NPAs, to improve asset quality of banks and to prevent slippages, RBI has issued instructions that each bank is required to have a loan recovery policy which sets down the manner of recovery of dues, targeted level of reduction (period-wise), norms for permitted sacrifice/waiver, factors to be taken into account before considering waivers, decision levels, reporting to higher authorities and monitoring of write-off/waiver cases. NPA is also reviewed during Annual Finance Inspections of banks and monitored on an ongoing basis through regulatory returns submitted by banks and periodical meetings with banks.

The Government has advised PSBs to take a number of new initiatives to increase the pace of recovery and manage NPAs, which include appointment of Nodal Officers for recovery, to conduct special drives for recovery of loss assets, to put in place early warning system, to replace system of post dated cheques with Electronic Clearance System (ECS). The Government has recently directed all PSBs to constitute a Board Level Committee for monitoring of recovery.

To address the issue or rise in NPAs and restructured advances of banks, and with a view to improving effective information sharing among banks on credit, derivatives and unhedged foreign currency exposures, banks have been advised to put in place, by end December 2012, an effective mechanism for information sharing. Any sanction of fresh loans/ad-hoc loans/renewal of loans to new or existing borrowers with effect from January 1, 2013 to be made only after obtaining/sharing necessary information. Banks have been advised that non-adherence to these instructions would lead to action including imposition of penalty wherever considered appropriate.

This was stated by the Minister of State for Finance Shri Namo Narain Meena in a written reply to a question in the Rajya Sabha today.

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DSM/RS/ka

Loan recovery policy strengthened: banks must adopt recovery measures and mandatory inter-bank credit information sharing to curb NPAs. Banks must institute a loan recovery policy detailing recovery procedures, reduction targets, norms for waiver and monitoring, appoint nodal officers, deploy early warning systems and replace post-dated cheques with Electronic Clearance System; a Board Level Committee must monitor recovery. Banks are required to implement an effective information sharing mechanism on credit, derivatives and unhedged foreign currency exposures by the prescribed deadline, and lending decisions are conditioned on obtaining and sharing requisite information, with non-adherence attracting supervisory action including penalties.