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Big loan defaulters could soon be facing music as RBI plans to use insolvency laws

In a bid to speed up the collection of stressed assets, the Reserve Bank of India (RBI) is planning to use insolvency laws against the big loans defaulters.

“The clock is ticking. Some cases are already before the National Company Law Tribunal (NCLT),” Sanjeev Sanyal, principal economic adviser to the Finance Ministry, was quoted as saying. “More lists will be out in the next few months,” he added.

The development assumes significance at a time when willful defaulter Vijay Mallya is in his safe haven in London after siphoning up over Rs 9,000 crore of loan taken from different banks in India over a period 11 years. Mallya owes loans to as many as 17 lenders, including the SBI, IDBI Bank, Punjab National Bank, Bank of India, Bank of Baroda, United Bank of India, Central Bank, UCO Bank, Corporation Bank, Indian Overseas Bank, Federal Bank, Punjab and Sind Bank and Axis Bank among others.

Last week the RBI notified twelve accounts, each having more than Rs 5,000 crore of outstanding loans, which accounts for as many as 25 per cent of the current gross bad loans of the banking system.

All these identified accounts are eligible for immediate reference for proceedings under the Insolvency and Bankruptcy Code (IBC) as per the recommendation of the Internal Advisory Committee (IAC) of the RBI. The process in these cases will be completed within a period of 90 days compared with 180 days in other cases, the government said.

Though the RBI did not disclose the names of the defaulters, reports suggest that borrowers such as Bhushan Steel, Essar Steel, Lanco, and Alok Textiles may be the first set of companies facing proceedings under the stringent recovery laws.

So far 81 cases of bad loans have been referred to NCLT. Out of the 81 cases, 18 were referred for bankruptcy by their creditors.

Bad loans have increased over the years, thanks to the wilful defaulters, bleeding the Indian economy. Presently, India’s bad loans have swelled to a whopping $180 billion. According to available data, private sector banks have been jostling with stressed assets of a staggering Rs 10 lakh crore as of December-end. Similarly, the stressed assets of public sector banks are pegged at a whopping Rs 6.07 lakh crore till December end. Central bank had earlier stated that stress was coming from sectors such as power, telecom, steel, textiles, and aviation.

According to Sanyal, cleaning up India’s stressed loan mess and strengthening the lenders are the immediate priorities of the Narendra Modi government.

Resolving the stressed assets will help the government plan capital infusion into state-owned lenders, Sanyal said.

The Union Cabinet, last month, had approved promulgation of an Ordinance to amend the Banking Regulation Act, which enables wide ranging powers to the RBI to initiate insolvency proceedings for the recovery of bad loans.

The NDA government has inherited a legacy of bad loans from the UPA dispensation. Since 2014, the Union Finance Ministry and the RBI have been drawing up strategy for the recovery bad loans.

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