As per Reserve Bank of India (RBI) data on global operations, aggregate gross advances of Public Sector Banks (PSBs) increased from Rs. 18,19,074 crore as on 31.3.2008 to Rs. 52,15,920 crore as on 31.3.2014. As per RBI inputs, the primary reasons for spurt in stressed assets have been observed to be, inter-alia, aggressive lending practices, wilful default / loan frauds / corruption in some cases, and economic slowdown.
Asset Quality Review (AQR) initiated in 2015 for clean and fully provisioned bank balance-sheets revealed high incidence of NPAs. As a result of AQR and subsequent transparent recognition by banks, stressed accounts were reclassified as NPAs and expected losses on stressed loans, not provided for earlier under flexibility given to restructured loans, were provided for. Further, all such schemes for restructuring stressed loans were withdrawn. Primarily as a result of transparent recognition of stressed assets as NPAs, gross NPAs of PSBs, as per RBI data on global operations, rose from Rs. 2,79,016 crore as on 31.3.2015, to Rs. 8,95,601 crore as on 31.3.2018, and as a result of Government’s 4R’s strategy of recognition, resolution, recapitalisation and reforms, have since declined by Rs. 89,189 crore to Rs. 8,06,412 crore as on 31.3.2019 (provisional data).
Data on NPAs is regularly published by RBI as part of its Financial Stability Reports. NPA data is not collated by RBI in terms of corporate houses / companies. PSB-wise details of gross NPA (GNPA) for Industry category advances in domestic operations and total GNPA in global operations, as per RBI data, are at Annex.
As per RBI provisional data on global operations, as on 31.3.2019, the aggregate amount of gross NPAs of PSBs and Scheduled Commercial Banks (SCBs) were Rs. 8,06,412 crore and Rs. 9,49,279 crore respectively.
Over the last four years, Government has taken comprehensive steps under its 4R’s strategy of recognising NPAs transparently, resolving and recovering value from stressed accounts, recapitalising PSBs, and reforms in banks and financial ecosystem to ensure a responsible and clean system.
Steps taken to expedite and enable resolution of NPAs of PSBs, include, inter-alia, the following:
(1) The Insolvency and Bankruptcy Code, 2016 (IBC) has been enacted, which has provided for the taking over management of the affairs of the corporate debtor at the outset of the corporate insolvency resolution process. Coupled with debarment of wilful defaulters and persons associated with NPA accounts from the resolution process, this has effected a fundamental change in the creditor-debtor relationship. Further, the Banking Regulation Act, 1949 has been amended to provide for authorisation to RBI to issue directions to banks to initiate the insolvency resolution process under IBC. As per RBI’s directions under the aforesaid amended provision in the Banking Regulation Act, 1949, banks have been filed cases under IBC before the National Company Law Tribunal in respect of RBI-specified borrowers.
(2) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act has been amended to make it more effective, with provision for three months’ imprisonment in case the borrower does not provide asset details and for the lender to get possession of mortgaged property within 30 days. Also, six new Debts Recovery Tribunals have been established to expedite recovery.
(3) Under the PSB Reforms Agenda, PSBs have created Stressed Asset Management Verticals to focus attention on recovery, segregated monitoring from sanctioning roles in high-value loans, and entrusted monitoring of loan accounts of above Rs. 250 crore to specialised monitoring agencies for clean and effective monitoring, and created online end-to-end One-Time Settlement platforms for timely and better realisation.
Enabled by the above steps, as per RBI data on global operations (provisional data for the financial year ending March 2019), gross NPAs of PSBs have declined from the peak of Rs. 8,95,601 crore in March 2018 to Rs. 8,06,412 crore in March 2019 (provisional data). PSBs have recovered Rs. 3,59,496 crore over the last four financial years, including record recovery of Rs. 1,23,156 crore during 2018-19.
……………………..
To strengthen the Public Sector Banks (PSBs), over the last four financial years, the Government of India has taken comprehensive steps under its 4R’s strategy of recognising NPAs transparently, resolving and recovering value from stressed accounts through clean and effective laws and processes, re-capitalising banks, and reforming banks through the PSB Reforms Agenda.
Over the last five Financial Years (FYs), PSBs have been recapitalised to the extent of Rs. 3.19 lakh crore, with infusion of Rs. 2.5 lakh crore by the Government and mobilisation of over Rs. 66,000 crore by PSBs themselves.
Other steps taken by the Government to improve the condition of banks, include, inter alia, the following:
Change in credit culture with institution of Insolvency and Bankruptcy Code (IBC) fundamentally changing the creditor-borrower relationship, taking away control of the defaulting company from promoters/owners and debarring wilful defaulters from the resolution process and debarring them from raising funds from the market.
Fugitive Economic Offenders Act has been enacted enabling confiscation of fugitive economic offenders’ property.
PSBs heads have been empowered to request for issuance of look-out circulars.
National Financial Reporting Authority has been established as an independent Regulator for enforcing auditing standards and ensuring audit quality.
Key reforms have been instituted in PSBs, including the following:
Board-approved Loan Policies of PSBs now mandate tying up necessary clearances/approvals and linkages before disbursement, scrutiny of group balance-sheet and ring-fencing of cash flows, non-fund and tail risk appraisal in project financing.
Use of third-party data sources for comprehensive due diligence across data sources has been instituted, thus mitigating risk on account of misrepresentation and fraud.
Monitoring has been strictly segregated from sanctioning roles in high-value loans, and specialised monitoring agencies combining financial and domain knowledge have been deployed for effective monitoring of loans above Rs. 250 crore.
To ensure timely and better realisation in one-time settlements (OTSs), online end-to-end OTS platforms have been set-up.
For faster processing of loan proposals, Loan Management Systems (LMS) have been put in place for personal segment and MSME loans.
To strengthen governance at the Board level, the position of Chairman and Managing Director has been bifurcated into a non-executive Chairman and an MD & CEO.
A professional Banks Board Bureau has been created for arm’s length selection of non-executive Chairmen and whole-time directors (WTDs).