Unbanked areas in India are served by “business correspondents”, essentially “human ATMs” operating out of small kiosks. (Photo: Esha Paul/The Quint)

State-Run Banks To Reassess Credit Needs Of Stressed Borrowers

Public sector banks will reassess the credit needs of about 4,500 genuine stressed borrowers, interim Finance Minister Piyush Goyal said.

These accounts, funded by lender consortiums, will be studied in an effort to support small- and medium-sized industries and other genuine companies who need working capital loans, Goyal told reporters in a press conference.

Loans to stressed firms carry a higher risk. With mounting non-performing assets and 11 out of the 21 public sector banks facing lending restrictions due to weak financials, such companies struggle to get capital. And that comes when the input tax credit mechanism under the Goods and Services Tax has elongated the working capital cycle, especially for small and medium enterprises. The finance ministry seeks to help them.

Banks will first study the credit needs of “good companies or borrowers” with a loan exposure of Rs 200-2,000 crore in the next three to four weeks, Goyal said. In the second stage, they will look specifically at accounts with borrowings up to Rs 200 crore and decide on further support to these industries and businesses which are already showing signs of revival, Goyal said.

Besides, public sector banks will arrive at a creditors arrangement to iron out problems faced in consortium lending. “All bankers amongst themselves will take up certain covenants to work as a team and not in silos,” he said.

Formal agreements will bring about the necessary improvements required in the consortium and multiple banking arrangement, State Bank of India Chairman Rajnish Kumar, who was also present at the press conference, said. The agreements will lay out certain ground rules which are missing as of now, he said.

These rules can be covered under inter-creditor agreements which will be worked out and examined by the Indian Banks’ Association and all bank boards, Kumar said.

SBI, which has strong risk and credit assessment practices, can share them with smaller banks which don’t have such robust processes, Goyal said. “There is a suggestion SBI has made of forming committees which may have some ex-vigilance experts or former judicial officer or former banker which will help these banks.” Banks may also be look at setting up some external committees to to assess upgradation of technology, processes and human resources.

Bankers will also follow a decision taken by 66 percent of the lenders in a consortium, Goyal said. That’s in line with the Insolvency and Bankruptcy Code which makes any decision taken by two-thirds of the lenders binding, Goyal said.

Also read: RBI’s Draft Norms On Working Capital Loans To Bring Better Credit Discipline: SBI Research

‘RBI Has Enough Powers To Regulate PSU Banks’

The Rs 14,000-crore fraud reported at Punjab National Bank involving firms related to jewellers Nirav Modi and Mehul Choksi triggered a debate on if the Reserve Bank of India should be given more powers to regulate state-run lenders.

RBI Governor Urjit Patel, in a speech delivered on March 14, pointed out that banking regulatory powers are not ownership neutral in India. That prevents the RBI from fully exercising its powers to crack down on corporate governance issues at state-owned banks, leading to frauds such as the one at Punjab National Bank, he had said.

Goyal said the central bank already has enough powers to regulate public sector banks. “I personally don’t believe there is a shortage of power. We will have a discussion with Reserve Bank of India and sort it out,” he said. The government is, however, open to providing any additional powers that the banking regulator may require, he added.

Also read: Why Urjit Patel Wants More Regulatory Powers Over State-Owned Banks