The Hindu Business Line : Banks told to be merciless with wilful defaulters

THE Finance Minister, Mr Yashwant Sinha, said here on Saturday that the proposed legislation to help banks recover the dues from defaulters would strengthen the rights of creditors and would lead to a improvement in bond prices, the share prices of banks, create a market for securitised assets besides providing an incentive to recover sticky assets and improve the financial health of banks.

The Minister also said that the proposed asset reconstruction company (ARC) is likely to be set up this month. It would have the specialisation to handle bad loans. The Government had also directed banks to be merciless with wilful loan defaulters. They have also been told to opt for one-time settlements with borrowers to recover their dues. "We cannot afford to show any mercy to the wilful defaulters. Chase them, bring them to the Debt Recovery Tribunals (DRTs) and handle them as strongly as possible '' he said.

Several banks have filed suits against defaulters in the DRTs. The Unit Trust of India has also approached the DRTs against a few industrial houses to recover dues.

According to him, banks should take up one-time settlement for small borrowers while clamping down on wilful defaulters. They should also offer higher credit to small borrowers especially first generation entrepreneurs. In this respect, they should move out from the "charms'' of the top 500 corporates and go out to those who need credit the most, he said.

Mr Sinha suggested that banks could work with self-help group co-operatives to recover dues from borrowers.

He also referred to the setting up of a Deposit Insurance Corporation to safeguard the interests of the depositors. This would need legislative changes. In this year's Budget, Mr Sinha had announced the Government's intention to set up this corporation.

The Finance Minister complimented banks for their performance in 2001-02 in terms of higher profits and lower NPAs. While praising the weaker banks on their turnaround, he said that their performance had to be viewed against the background of a difficult phase in the economy.

However, banks should strive to improve the credit-deposit ratio in many parts of the country where it was lower than the industry average. That needs to be improved, he added.

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