The All India Bank Employees’ Association (AIBEA) has called for the setting up of a Central authority, comprising retired bankers with credit knowledge and integrity, under the auspices of the Central Vigilance Commission (CVC) to vet the proposals for write-off and compromise.

The authorities or the Committees that have sanctioned loans must not have the powers to write-off the same, according to CH Venkatachalam, General Secretary, AIBEA. “The (public sector) banks are bleeding because of the problem of bad loans and huge write-offs and provisioning are being made year after year from out of the operating profits,” he said.

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As per the Association, in 2019, bad loan write-offs by banks amounted to ₹1,83,391 crore and the amount transferred from operating profits as provisions for bad loans/ NPAs (Non-Performing Assets) was at ₹2,29,852 crore.

‘Compromise’ proposals

Venkatachalam emphasised that all write-off proposals beyond a particular limit should be disposed off by the Central Authority constituted specifically for the purpose. Further, “compromise” proposals should be screened at the highest levels. He alleged that going by present day experience, these so-called “compromise proposals” are nothing but camouflage and cover-up of collusive acts.

“Willful bank loan default should be treated as a criminal offence… personal guarantees/ assets of the borrowers including directors of the corporate sector should be attachable for recovery of bank loan dues as has been held by the Supreme Court of India,” Venkatachalam said.

In a representation to the RBI’s committee on the functioning of Asset Reconstruction Companies (ARCs), AIBEA said, “Looking to ARCs’ track record, recovery performance, and the loss borne by the banks on bad debts handled by ARCs, we are very clear that ARCs are not required but stringent laws should be enacted to recover all willful defaults at a relatively quick-time.”

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The Association suggested that banks should be banned from lending to a company or group of companies, which defaulted and whose account has become a NPA in a particular bank. “The loans of such groups in other banks should also be treated as NPA and should be recalled by the banks. This, we feel, would enable speedy recovery of willfully defaulted corporate loans,” Venkatachalam said.

‘No participation’

The company or group of companies should not also be allowed to participate in the auction for purchase of assets of other defaulting company or group of companies that are brought through SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) or ARCs.

The Association said in case of ARCs, as far as the Public Sector Banks are concerned, the amount of discount with which a bad loan is sold, the discounted amount should be replenished by the government of India as they are the primary owners of these banks.

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“The present system of sharing recovery on water-fall structure has to change. At present, ARC recovers first its legal and resolution expenses and then management fees and thereafter the recovery is shared in the agreed ratios. This needs to be changed to proportionate sharing of all the items so as to keep the ARC driving recovery,” Venkatachalam said.

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