No tolerance for bad loan recovery, particularly from big defaulters:Nirmala Sitharaman

New Delhi: The Enforcement Directorate (ED) has so far attached assets worth Rs. 64,920 crore from 1,105 such defaulters under its scrutiny, according to Finance Minister Nirmala Sitharaman, who stated on Friday that there has been “no leniency” in recovering bad loans from huge defaulters and that the process is ongoing.

The Finance Minister denied the Opposition’s allegation that loans to industrialists were waived under the Modi administration in a series of tweets on X.

The Opposition, which is accustomed to disseminating false information, falsely asserts that industrialists have had their loans “waiver”ed. It’s unfortunate that opposition leaders still can’t tell the difference between write-offs and waivers, even if they consider themselves to be “experts” in banking and the economy. Following the “write-offs” in accordance with RBI norms, banks actively work to recover non-performing loans. Furthermore, no industrialist’s debts have been “waiver”. Banks recovered more over Rs. 10 lakh crore from bad loans between 2014 and 2023, according to Sitharaman.

Approximately 1,105 bank fraud cases have been examined by the ED, and as a result, criminal proceeds totaling Rs. 64,920 crore have been attached. According to her, assets totaling Rs. 15,183 crore had been returned to Public Sector Banks (PSBs) as of December 2023. “The process of recovering bad loans is ongoing and has not been lenient, particularly with regard to large defaulters.”

She said that the balance sheets of both banks and corporations were under stress as a result of the previous administration’s abuse of the banking industry to benefit “cronies” through reckless lending and concealing real non-performing assets (NPAs). “Banks are no longer “NPA-laden nightmares”; instead, they are now “Pillars of Jan Kalyan.” We no longer have a “Twin Balance Sheet Problem,” but rather a “Twin Balance Sheet Advantage,” the speaker continued.

“Our government and the Reserve Bank of India (RBI) implemented a number of measures, such the Asset Quality Review (AQR), that exposed hidden mountains of non-performing assets (NPAs) and stopped the use of accounting gimmicks to conceal them. The shameful legacy of the “Twin Balance Sheet” situation, which we inherited in 2014, was caused by reckless and imprudent loans during the Congress era, according to the finance minister.

According to her, getting bank loans during the United Progressive Alliance (UPA) administration frequently hinged more on strong contacts than a strong business plan. Before authorising these loans, “banks were forced to neglect proper due diligence and risk assessment,” the accuser stated.

According to her, the gross non-performing assets (NPAs) of PSB reached a peak of 14.6% in 2017–18, after banks’ full disclosure of their NPAs for loans made prior to 2014.

She cited the opinions of former RBI governors Urjit Patel and Raghuram Rajan, who have expressed disapproval of the current administration, and claimed that the two leading figures in the Indian banking sector had also brought up the NPA crisis that the UPA regime had caused and had “openly exposed” the extent of the system’s degradation left by the previous administration.

Rajan, who took part in the ‘Bharat Jodo Yatra’ organised by @RahulGandhi, called the NPA crisis of the UPA era a ‘historic phenomena of irrational exuberance.’ Sitharaman quoted Patel as saying that PSB operations under the UPA experienced “a perennial shortcoming on account of bureaucratic inertia and political meddling.”

In order to curb the evergreening of bad loans and uncover hidden NPAs, the RBI launched a comprehensive AQR in 2015 under the leadership of Prime Minister Narendra Modi. By March 2018, total NPAs had increased to Rs. 10,36,187 crore.

Because evergreening caused the majority of NPAs to be concealed on bank balance sheets, the gross nonperforming assets (NPAs) as of March 31, 2014, was Rs. 2,16,739 crore prior to the AQR. In order to restore the health of the banks, the government subsequently implemented a four-point plan known as recognition, resolution, recapitalization, and reforms. Even though banks were recapitalized for Rs. 3.10 lakh crore, as of March 2024, other reforms including the Insolvency and Bankruptcy Code (IBC) had addressed loans totaling more than ₹3.36 lakh crore.

“We tackled responsible lending, stress recognition and resolution, credit discipline, and enhanced governance through our reforms. Professional integrity and independence have taken the role of political meddling in banks. According to Sitharaman, the Banks Board Bureau (BBB) was established to facilitate an open process for choosing non-executive chairpersons and full-time directors.

“Our government issued a framework for the timely detection and investigation relating to large value bank frauds in 2015,” the speaker stated, providing specifics about the reforms made to the banking sector. For quicker recoveries, the Insolvency & Bankruptcy Code was introduced. Property belonging to fugitive economic offenders may be seized under the Fugitive Economic Offenders Act of 2018. The SARFAESI Act was modified to increase its efficacy. Banks have recovered ₹1.51 lakh crores through SARFAESI during the past five years.

The creation of stressed asset management verticals by PSBs for strict recovery, the separation of monitoring from sanctioning roles in high-value loans, the deployment of specialised monitoring agencies for effective monitoring of loans above ₹250 crore, and online end-to-end one-time settlement (OTS) platforms to ensure timely and better realisation were among the measures that helped strengthen banks.

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