Banking sector reforms continued this week.
Banking sector reforms continued this week with the government making major changes to the Insolvency and Bankruptcy Code that will now bar wilful defaulters and other promoters from participating in the process of buying assets. In other news from the sector, State Bank of India's Chairman said he prefers haircuts over going bald, while asset reconstruction companies get more exemptions.
The President of India on Thursday approved an ordinance which stipulates that those companies whose loan accounts have been non-performing for a year or more will not be allowed to participate or bid to buy assets in the resolution plan. Those who have not have settled overdue amounts on the said accounts will also not be permitted.
That said, about 5,500 wilful defaulters with loans of Rs 25 lakh and above each against whom banks and other lenders filed suits have defaulted on total loans worth Rs 60,739 crore.
This is a decline of nearly 40 percent from a quarter ago which saw 9,077 willful defaulters with unpaid loans worth Rs 1.07 lakh crore in June 2017, as per data compiled by TransUnion Cibil, a credit bureau company.
Meanwhile, State Bank of India Chairman Rajnish Kumar said that banks, while deciding to buy, will have to factor in the quality of the promoter as well as the quality of assets.
According to him, the ordinance has now made it very explicit. “I will be happy when the resolution happens. I don't mind some haircut but I don't want to [go] bald," he stated on asking if he was happy with the changes in the Bankruptcy Code.
While the banking sector is battling stressed loans, its efforts to remedy the issue have borne fruit as the September quarter witnessed the slowest incremental rise in gross non-performing asset (NPA) movement in the last 10 quarters, at Rs 11,000 crore in three months.
In an interview with Moneycontrol, CEO of ARCIL or Asset Reconstruction Company (India) Vinayak Bahuguna said that the bad loan sale will see more resolutions with a 100 percent transaction deal between ARCs and banks.
Expecting asset buyouts worth Rs 3,000-4000 crore, Bahuguna believes there should be a greater scope for new investors to enter and provide additional funding to companies under the IBC.
Further, the Reserve Bank of India (RBI) eased equity holding beyond 26 percent for asset reconstruction companies in firms it is attempting to resolve. However, this has to be met with certain conditions including approvals from its Board of directors and having a net owned fund of Rs 100 crore.
In other news, after the over Rs 1 crore heist of jewellery and other valuables from a Mumbai branch, public sector lender Bank of Baroda has created a new alert systems. It has decided to install electronic surveillance systems at its branches and ATMs.