Financial Express 22 Feb. 08 New Delhi P 4
A significant rise in default cases has led to a surge in the level of non-performing assets (NPAs) in the banking sector. Interestingly, cases of willful default are much less compared to fraud ones. This has put the finance ministry under severe pressure to initiate a full investigation into the matter. In a recent meeting with finance minister P Chidambaram, PSU bank CEOs pointed out that the legal system in the country is not only archaic but also ambiguous and needed to be reformed at the earliest.
“Legal reforms are not keeping pace with the dynamics of the banking rules and until both are in sync, problems relating to NPA and other issues would come up,” a PSU bank chairman said, adding that the Reserve Bank of India (RBI) and the government must address the issue.
The central bank has already issued several caution advice notes to banks, stressing that fraud cases are on the rise. Due to the archaic and ambiguous legal framework in the country, impersonation and multiple title deeds are common which have had adverse financial implications on the banking system. Sources said banks could not seek recourse under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, as it provides legal recourse only in cases of willful default. “It does not come into play in case of frauds,” a senior banker pointed out.
Though Chidambaram has asked the banks to increase focus on raising personal, automobile and even housing loans, bankers said cautious steps would be taken to ensure that default cases are reduced. With the increase in provisioning norms for various segments including home and personal loan, banks finds it difficult to meet stiff targets.
Chidambaram said banks must focus on the credit delivery mechanism. He pointed out that there has been decline in credit towards segments like housing and consumer durables. Chidambaram has also urged banks to soften interest rates.
With Thanks from the Financial Express
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