Just one week after giving the Reserve bank of India (RBI) the power to deal with the unpaid loans and the authority to direct lenders to initiate the insolvency resolution in case there is a default in the payments, the RBI has identified 12 of the country’s biggest loan defaulters and has now asked the creditors to pursue bankruptcy proceedings against them. Nirmal Singh 3C Company says that the default in the payments is not a small problem, it leads to a cut of about USD 150 billion, adding debt to Asia’s third largest economy.
This means that now the banks can no longer leave bad debt on their books and can forcefully put aside the money to cover the losses during the times the bank is short on the funds and the bank seeks to comply with international capital standards.
According to Nirmal Singh 3C company, it was assumed that this year the provisioning requirements would be comparatively less but if criminal proceeding start, them even this year would be just another year of delay of profit recovery in the banking sector.
The 12 defaulters named by the RBI are on accounts owing more that ₹ 50 billion and have about 60% of the loan listed as non- performing as of March 2016. These accounts alone constitute to about 25% of overall gross non-performing assets.
Nirmal Singh 3C Company says that it is high time that the RBI started acted on it. India’s stressed debt has reached its highest level with about 80 percent made up from the non- performing loans (NPLs) and the remainder from the reconstructed loans.
How stressed debt effects the economy?
Stressed debt means the holding of funds in the hands of those not using it for any fruitful purposes. This makes less fund available for new loans and hampers the chances of economic growth in the country. The development of the country is effected due to the cash crunch the banks face when the debts are not re-payed to them on time. To solve this problem, the government has taken various steps like debt- equity swaps, balancing the economic situation for the banks.
Solution for the stressed debts
Nirmal Singh 3C Company says that after looking at the complete situation, with an oversight committee looking into the matters of the settlement and a proper investigation against the defaulters is going to help the bank recover the loses and use the money for the new projects.