Financial Daily from THE HINDU group of publications
Monday, Jul 22, 2002
Money & Banking
Bill on NPA recovery puts in more action Wilful defaulters may find going tough
Sarbajeet K. Sen
NEW DELHI, July 21
THOUGH the Bill to replace the Ordinance for NPA recovery has not made any concession for any category of defaulters for action by lenders under the new law, industry's plea for a distinction between wilful and non-wilful defaulters would be met in practice. However, what might not please industry is that the segregation of defaulters based on their intent and the resultant action to be taken would again be on terms laid down by lenders themselves.
Finance Ministry officials told Business Line that the message to the lenders from the Government would be to wield a heavier stick while dealing with cases of wilful defaults. "For wilful defaulters, the banks and FIs would go a step further than the powers provided under the new law, including launching criminal proceedings. None of the powers already available with the lenders to deal with wilful default has been diluted by the new law," a top official said.
The official pointed out the Reserve Bank of India had already instructed the banks and FIs regarding the measures to be taken against wilful defaulters with the latest set of directives having been given as recently as May 2002.
"The RBI directions to the lenders would form the basis on which the distinction of treatment would be made between wilful and non-wilful defaulters," he said.
In its latest offensive against wilful defaulters, the RBI had not only asked the lenders to explore the option of filing suits, but also suggested other punitive actions such as preventing them from accessing the capital market, stoppage of all additional finance for a period of five years from the date their names appear on the select list of wilful defaulters prepared by the banks.
The central bank has also proposed that group companies of wilfully defaulting company should also be treated on a similar fashion if guarantees and comfort letters provided by them for the defaulting company are not honoured.
Explaining the rationale for not making any distinction between types of defaults in the new recovery law, officials pointed out that the aim of the law was to arm the lenders with strong powers to recover bad debts.
"We cannot go slow on defaults that are not wilful. No one should make out a case for lenient treatment for non-wilful defaults since these would constitute a greater chunk of the bad debts of the lenders. The law is aimed at creating a better recovery climate and not to target a particular category of borrowers," officials said.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Bill, 2002, to replace the earlier Ordinance by the same nomenclature was introduced in Parliament Friday last.
The new law enables banks and FIs to take possession of secured assets of the lenders in cases of defaults for further selling or auctioning them to recover their dues. It also allows them to move in and take over the management of the defaulting units.
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