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The Reserve Bank of India has told the Supreme Court that its “resolute efforts have resulted in material decline in the Non Performing Assets (NPAs) of the banking system”.
The central bank said this in response to a PIL by the Centre for Public Interest Litigations (CPIL) which sought directions to prevent NPAs, bank frauds, and to prosecute wilful defaulters.
Hearing the PIL on Wednesday, a bench of JusticEs S K Kaul and A S Oka asked the CBI to inform as to what can be done to implement the January 2017 recommendations made by a committee appointed following its directions in the case.
The RBI pointed out that in an earlier affidavit dated July 17, 2017, it had said that of the 23 recommendations of the Committee, it was in principle agreeable to seven
It further said that recourse to the Insolvency and Bankruptcy Code (IBC), 2016, and the amended provisions of the Banking Regulation Act, 1949, introduced through the Banking Regulation (Amendment) Ordinance, 2017, “enabled the Reserve Bank to effectively introduce measures to address the resolution of stressed assets”.
Subsequently, an Internal Advisory Committee constituted by the RBI recommended all accounts with fund and non fund based outstanding amount greater than Rs 5000 crores with 60% or more classified as NPAs by banks as of March 31 2016 for initiation of corporate insolvency resolution process under the IBC, it said adding that the central bank accordingly issued directions to certain banks in June 2017 for referring 12 accounts that constituted about 25% of gross NPAs of the banking system at that time for this.
The RBI, it pointed out, issued another set of directions advising banks to finalise and implement a viable resolution plan in respect of another 29 borrowers by December 13, 2017. However, a viable resolution plan could be implemented only in respect of one borrower and applications to initiate insolvency resolution process under IBC were filed by the banks in respect of the remaining 28 borrowers, the affidavit said.
The RBI said that “the regulatory experience thereon enabled” it “to envisage a generic Framework which was issued on February 12, 2018 under ‘Resolution of Stressed Assets —Revised Framework’… the Framework prohibits restructuring of borrowers who have committed frauds/ malfeasance/ wilful default. However, in cases where the existing promoters are replaced by new promoters, and the borrower company is totally delinked from such erstwhile promoters/management, lenders may take a view on restructuring such accounts based on their viability, without prejudice to the continuance of criminal action against the erstwhile promoters/management. This effectively disincentivises any form of mala fide intent by the borrowers by preventing any sort of accommodation by the banks”.
The affidavit said that “various other measures have also been undertaken by the Reserve Bank in the recent past in pursuit of ensuring prudent lending by banks” including to ensure credit discipline amongst the borrowers as well as to facilitate better monitoring by the lenders and prevent diversion of funds.
It pointed out that “the recently issued Financial Stability Report of the Reserve Bank on December 29, 2022 indicates that the gross non-performing assets (GNPA) ratio of banks has been steadily trending down to a seven-year low of 5.0 per cent in September 2022, while net non performing assets (NNPA) have dropped to a ten-year low of 1.3 per cent of total loans. The Reserve Bank continues to monitor the situation and would assure to take prudent measures in discharge of its statutory mandate, to ensure a sound and resilient financial system, in the interest of all the stakeholders”.
On the plea for action against Anil Dhirubhai Ambani Group (ADAG) OVER bank defaults, it said “classification of the accounts of Reliance ADAG companies as fraud is under litigation”.
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