Parliament panel seeks forensic audit of all bad loans

A standing committee of Parliament has called for forensic audit of all bank loans that have gone sour even after efforts at restructuring and has warned that the rising trend of non-performing assets (NPAs) with banks has ''the potential to damage the growth story.''

The panel has asked the Reserve Bank of India (RBI) to look into cases of willful default and to prepare guidelines for forensic audit of such loans as well. The panel wanted analytical reports of the forensic audit to be submitted before it in six months.

Wilful defaults alone add up to Rs64,335 crore of the NPAs with public sector banks and 21 per cent of total NPAs of the banking system, the report pointed out, and called for naming and shaming top 30 defaulters.

There is no justification of keeping the names secret and asked the RBI to amend its guidelines, it added.

Public sector banks had reported net NPAs of Rs2,05,024 crore as of end-September 2015, and these could reach Rs4,00,000 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.

In its report, which was adopted by Parliament on Friday, the Finance Standing Committee of Parliament also called for immediate measures to restructure bank loans that have become bad debts.

''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 wanted the Reserve Bank to form empowered committees at the level of RBI, banks and borrowers to monitor large loans.

Despite all warnings by the present RBI governor Raghuram Rajan, the panel

said RBI, as a regulator, did not succeed in implementing its own guidelines and called for a proactive approach and regular monitoring to curb such tendencies.

The panel also recommended the development of a ''vibrant bond market'' to finance infrastructure investments.

The panel also called for revamping of development finance institutions to provide term finance for large infrastructural projects. Such institutions should also be granted powers to take over infrastructure projects that turn into NPAs and keep them as standard assets, the panels said.
 
The report also noted that a slow process of corporate debt restructuring (CDR) tended to nullify the good effects of such measures and called for a six-month deadline for the CDR mechanisms so as to avoid slippages in the 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 NPA problem worsens during a prolonged slowdown in the economy that erodes the market for distressed assets so much so that even asset reconstruction companies found it hard to offload, the report added.