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NPA Ordinance may cover urban co-ops too

Sarbajeet K. Sen

NEW DELHI, July 15

THE first major change in the Ordinance for recovery of non-performing assets (NPA) is in the offing with the Government agreeing to widen its scope to include urban co-operative banks (UCBs) under the new legal dispensation.

The Finance Ministry has taken an in-principle decision to this effect. Officials said that a notification for this purpose is likely to be issued soon.

"The UCBs have requested us for being given the recovery powers provided under the Ordinance. There is merit in their arguments," officials said.

The UCBs have been up in arms for having been left out of the purview of the Ordinance. Strong representation to be given similar powers was made to the Finance Ministry by the apex body of UCBs - the National Federation of Urban Co-operative Bank and Credit Societies (NAFCUB).

The UCBs would be particularly happy since the initial feedback from officials after the promulgation of the Ordinance gave the impression that these banks would have to wait till the Government made its initial assessment of the actual implementation of the law by banks and FIs.

Under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2000, banks and FIs have been given powers to take possession of the secured assets of defaulters and to subsequently dispose them of to recover their dues. The entire process can now be done without taking recourse to any court proceedings.

The lender can also now take over the management of the defaulting companies and resort to rescheduling of payments of debt payable by the borrowers.

The Ordinance also provides that the securitisation or reconstruction companies can exercise these powers once the bad assets of the lenders are transferred to them.

The NAFCUB had pointed out to the Finance Ministry that the debt recovery procedures outlined for UCBs under the State Co-operatives Act were hardly effective in dealing with the large portfolio of NPAs that the sector has been carrying.

According to the Reserve Bank of India's Report on Trend and Progress of Banking in India 2000-01, the gross NPAs of the 1,866 reporting UCBs amounted to Rs 5,589 crore as on March 31, 2000, which was 12.1 per cent of their total advances.

Though the variation for the subsequent years is not readily available, UCB sources pointed out that in view of the subsequent troubles erupting in the sector, starting with the Madhavpura Co-operative Bank scam, there would have been an exponential increase in NPAs.

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