The Government of India has spent more than Rs. 30,000 cr of the taxpayers' money to support banks and financial institutions for NPAs. Whereas lending by banks has a multiplier effect on the growth of the economy, on the contrary, banks' NPAs have a multiplier effect on the value destruction of the economy. In common parlance, there is a tendency to refer to NPAs in the system only with the NPAs of banks and Financial Institutions (FIs), overlooking the huge stocks of NPA of NBFCs, co-operative banks, state financial corporations, insurance sector, and mutual funds. But the need of the hour is to refer to distressed assets as a whole rather than only the published NPAs.
The total distressed asset stock in India, as of March 2005, excluding state financial corporations, mutual funds and the insurance sector, is in the region of Rs. 2,55,000 cr. Besides the above, accretion of NPAs of all scheduled commercial banks is in the range of 1.84% to 3.65% between FY'03 and FY'05. Reduction in government borrowing and efforts towards enhancement of existing credit to GDP ratio (presently around 50%) would improve CAGR of credit growth from existing 20% to 30%. This aggressive credit growth is likely to dilute credit risk assessment and result in fresh flow of NPAs, which is currently over Rs. 20,000 cr per annum.
The distressed assets are mostly backed by assets such as plant and machinery, real estate, book debts and in many cases also by personal guarantees of promoters. There is a great amount of value in NPAs, but a concerted and focused approach is necessary for extracting the same. It is with this intention that the government introduced various measures from time to time, which met with varying degrees of success. These measures are discussed below:
Special tribunals namely Debts Recovery Tribunals (DRTs) were set up under the Recovery of Debts due to Banks and Financial Institutions Act, 1993, with exclusive jurisdiction to try and dispose of matters pertaining to recovery of debts due to banks and financial assets.
DRTs had the potential of playing a significant role in NPA realization. Most often, the DRT strategy has to be mixed and matched with other remedies like winding up under the Companies Act, 1956, criminal actions, etc., wherever necessary. These are not exclusive remedies to be used in watertight compartments. There is no panacea, and based on the case-specific situations very effective results can be yielded if all these remedies are properly pursued.
|
