Let banks recover dues from defaulters own assets Staff

first_imgMumbai/ New Delhi: Bank unions have called up on finance minister Nirmala Sitharaman to enact strong recovery laws with a provision to confiscate personal assets of directors of defaulting companies. Sitharaman, the first full-time woman finance minister, will be presenting the budget on July 5.In a pre-budget representation, the All-India Bank Employees Association said, “to facilitate loan recoveries, laws should be enacted/amended to confiscate personal assets of the directors in case of default by a company.” Also Read – SC declines Oil Min request to stay sharing of documentsFast-track courts shall have to be vested with more powers to recover bad loans and stringent laws should be enacted to ensure more recoveries, the unions said in a letter to the finance minister. They also called for shutting down asset reconstructions companies. The letter further said the insolvency and bankruptcy code is facilitating defaulters to get away easily as banks are forced to take huge haircuts. “The IBC favours resolution of bad loans instead of recovery. Hence, recovery mechanism should be strengthened instead of resolution process,” the letter said. Also Read – World suffering ‘synchronized slowdown’, says new IMF chiefTo make the bankers more accountable, they said a system must be evolved to ensure accountability and responsibility on the part of MD/CEOs, executive directors and other senior executives of state-run banks who are involved in credit sanctions and of the loans became NPAs within one year. With rise in NPAs, the government should institute more debt recovery tribunals and fast-track courts to recover bad loans, it said, adding, “wilful defaults should be declared a criminal offence by suitable amendments.” “The RBI should publish the list of defaulters, who owe to banks more than Rs 1 crore, every six months with updates,” the letter said. The unions also suggested the finance minister to announce a separate development finance institution/bank to finance infrastructure projects. “In the absence of domestic financial institutions, public sector is now extending long-term credit to infrastructure projects and thus there is a distinct asset and liability mismatch. Short-term funds of banks are locked up in long-term projects, inflating NPAs,” the letter said. They also suggested the Reserve Bank stop issuing licences to private sector banks and also scrap on-tap licensing policy. Meanwhile, markets watchdog Sebi on Thursday came out with a strict disclosure framework for credit rating agencies wherein they will be required to provide the probability of default for various rated instruments. The regulator’s move comes against the backdrop of rising instances of debt defaults and concerns over the role of credit rating agencies in assessing the possible risks. Credit rating agencies have also come under the scanner in the IL&FS case. Issuing guidelines for enhanced disclosures by Credit Rating Agencies (CRAs), the watchdog has called for having a uniform Standard Operating Procedure (SOP) in respect of tracking and timely recognition of default. The same has to be disclosed on the website of each CRA. Besides, the agencies would have to put in place Probability of Default (PD) benchmarks. “In order to enable investors to discern the performance of a CRA vis-a-vis a standardised PD benchmark scale, CRAs, in consultation with Sebi, shall prepare and disclose standardized and uniform PD benchmarks for each rating category on their website, for one-year, two-year and three-year cumulative default rates, both for short-run and long-run,” the circular said.last_img

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