Against the backdrop of Vijay Mallya episode, the Lok Sabha 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.
“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 purviewof 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.
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 sytematically 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.
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.