Forensic audit must for all bad loans, Parliament Panel to RBI

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The Hindu Business Line, February 05, 2016

Cautioning that the rising trend of non-performing assets (NPAs) with banks has ?the potential to damage the growth story?, the Finance Standing Committee of Parliament has called for immediate forensic audit of all restructured loans that had turned into bad debts.

Forensic audit is also required for wilful defaults and Reserve Bank of India (India) has been asked to prepare guidelines for the process. The analytical reports of the forensic audit should be submitted to the panel in six months, it said in its report, which was adopted here on Friday.

?We have adopted the report. We will submit it to the Speaker,? said Veerappa Moily, Chairman of the panel and senior Congress MP, after the meeting.

The panel asked the apex bank to form empowered committees at the level of RBI, banks and borrowers to monitor large loans.

As on September 2015, net NPAs of public sector banks stood at ₹ 2,05,024 crore and may reach Rs. 4 lakh crore by the end of this fiscal, the panel said, adding that such a huge figure ?raises questions? on the credibility of mechanisms to deal with NPAs.

The report said wilful defaulters owe public sector banks ₹ 64,335 crore, which constitutes about 21 per cent of total NPAs, and called for making public the names of the top 30 stressed accounts of each bank, in the category of wilful defaulters. There is no justification of keeping the names secret and asked the RBI to amend its guidelines, it added.

RBI, as a regulator, did not succeed in implementing its own guidelines, it said, an asked the apex bank to proactive and monitor the issue on a regular basis.

The panel also recommended the development of a ?vibrant bond market? to finance infrastructure products. Batting for large infrastructural projects, it said the Centre should revive Development Financial Institutions for long-term financing of such projects and urged the Centre to also allow Infrastructure Finance Companies to buy infrastructure projects turning into NPAs and keep them as standard assets.

The report noted that in majority of the cases, corporate debt restructuring (CDR) mechanisms had failed to achieve the desired objectives, adding that there should be a definite timeline of six months to settle CDR cases. In 2014-15, most of the slippages came from restructured debt.

On strategic debt restructuring, the report said it could empower banks to take control of the defaulting entity, and recommended that a change in management must be made mandatory in cases involving wilful default.

The prolonged slowdown in the economy has eroded the market for distressed assets so much so that even Asset Reconstruction Companies found it hard to offload these, the committee observed, adding that RBI should consider creating a dispensation that allows banks to write off losses in a staggered manner.

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