Among the extensive measures the central bank is contemplating are the leveraged buyout of distressed assets, the independent valuation of loans of 500 crore and above sought to be restructured, a joint lenders' forum to prevent loans on which payments are missed for a quarter from slipping into bad debt and a bigger role for non-banking finance companies (NBFCs).
Harsher measures could include the blacklisting of directors, auditors and lawyers associated with defaulters and a new category of 'non-cooperative borrowers', part of the governor's plan to ensure that banks get back in shape to fund the next round of investments that are essential for a recovery.
Rajan has made it clear since taking over in September that the central bank will aggressively pursue a cleanup of the banking system, which has suffered from a cosy relationship between some bankers and companies, apart from political interference.
Total Restructured Loans up 45% at 2,72,286 Crore
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The central bank is right to be worried. Total restructured loans, including those that have been withdrawn and exits from the corporate debt recast programme, shot up 45% to Rs 2,72,286 crore at the end of September from Rs 1,87,394 crore a year ago. What frightens stakeholders is that the debt structuring process may merely be a delaying tactic for companies and bankers that temporarily allows them to hide loans that have gone irrevocably bad.
Removing promoters who are wilful defaulters, selling off units that dragged a company down before recasting debt, mandatory equity investments by founders and the transfer of promoter holdings to a security trustee until the company turns around are also proposed by the discussion paper on "Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders" issued by the RBI on Tuesday. A final call will be taken after public responses.
The guidelines should strengthen lenders' ability to recover loans, said Shinjini Kumar, leader, banking and capital markets, PwC India. "The steps proposed by the RBI are what banks should do. Since lenders have not followed the basics, RBI is pushing it through regulation," Kumar said. "RBI has ensured that it becomes a lot more expensive for banks to keep NPAs (non-performing assets) on their books. You have made banks responsible for the behaviour of the borrowers, which will make banks extremely careful in selection of borrowers.''
"Banks should use this as an incentive to take quick decisions for early resolution of bad loans,'' said RK Bansal, chairman of the Corporate Debt Restructuring cell that monitors loan recasts. "It will enable banks to retain the value of the assets and prevent creation of stressed loans.''
The proposal provides for a cooperative promoter to have a call option over shares with banks after paying off dues, and also takes away from lenders the recompense clause if they choose to convert a part of their loans into equity.
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