Government and RBI’s Plan against NPA and Bad Loans

The latest amendment brought by the government has empowered the RBI to direct banks to take action against NPA (bad loans) and defaulters. Bad loans have created a huge stress on banks.

Government and RBI Firm to take Firm Measures on Top NPA

The government on Tuesday signaled that it has made its mind on taking firm action against top loan defaulters. Last month, the government passed an ordinance empowering the Reserve Bank of India to direct and initiate insolvency proceedings to solve bad loans and NPA problems which has created a stressed balance sheet for banks. The advisory committee has marked 40-50 top companies that fall in the list of bank defaulters.

The share of these companies is up to 9.64 lakh crores that is hurting the economy very bad and the credit growth has fallen 6 decade low to 5.08%. Nearly 81 cases have been filed under Insolvency and Bankruptcy Act, 2016. The PSUs have made stable operating profit of 1.5 lakh crore and a net profit of 574 crore but the growing bad loan is a serious threat to it.

RBI to Direct Banks to Take Action against 12 Loan Defaulters

The RBI said on Tuesday that it has identified 12 largest loan defaulter accounts and will soon be directing the lenders to take action against them under bankruptcy law. These 12 accounts occupy 25% of the total bad loans that is plaguing Asia’s third largest economy. These 12 accounts have more than 5000 crore of loans and 60% of them have already been identified as non-performing by the banks as of March 31, 2016.

The total bad loan amounts to 9.64 lakh crores and this is the first and major step taken by the government in tackling bad loan problems. These 12 accounts carry up to 1.75 lakh crores of bad loans. Top companies that fall into this list are, Jaypee Group, Bhushan Steel, Essar, Bhushan Power, Lanco, Alok Land, Aban Holdings and many more.

These companies are identified based on objective, non discretionary criterion outlined by internal advisory committee. This step along with further more steps in future will help the PSUs to tackle this bad loan problem and will help in giving a boost to the banks that are suffering badly from this.