The major recommendations are:-

  1. Accountability of nominee Directors of RBI / Ministry on the Bank

Boards as well as the CMDs / MDs of banks should also be annexed in

the matter.

  1. The Committee desires that the decisions taken to sanction loans in

violation of norms/guidelines should also be enquired into,

responsibility fixed, adequate penal action taken and the Committee

apprised accordingly.

  1. Further, till such time a project is commissioned as per approved

schedule, banks should not hasten to categorise such a project as NPA.

  1. The extent and the quality of the equity that the promoters are capable

of infusing into a project, therefore, also needs to be factored in by a

lender bank.

  1. Therefore, the Committee would recommend that the Government

should make the necessary structural changes including revival of

Development Financial Institutions (DFI) for long-term finance,

especially for Infrastructure projects, which will go a long way in

nipping the problem of NPAs in the bud.

  1. The Committee also urge the Government for allowing Infrastructure

Finance Companies (IFCs) to purchase infrastructure projects turning

into NPAs and keep them as Standard Assets, as this step would not

only provide the much needed relief from stressed portfolio but also

create an enabling environment for funding the infrastructure sector

facing resource crunch. Besides, the IFCs should also be allowed to

participate in equity. The Banks should have equity component built in

the loan agreement itself. The Committee desire that the RBI should

explore the possibility of developing a mechanism wherein there would

be separate norms for NPA classification for infrastructure and noninfrastructure


  1. The Committee recommends that each bank must focus on their

respective top 30 stressed Accounts involving those categorized as

“willful defaulters” and make their names public. Such a step will act

as a deterrent for other promoters against wilful defaults.

  1. It will also enable banks to withstand pressure and interference from

various quarters in dealing with the promoters for recoveries or

sanctioning further loans. On the other hand, promoters will also be

cautious before applying for loans. The Committee are of the view that

when companies, which have undergone restructuring process for

their stressed loans, should be made public, there cannot be any

justification for maintaining secrecy on this count. Further, to make the

system more transparent RBI can explore the possibility of conducting

capital assessment, wherein each bank is analysed across parameters

including its loan and securities portfolios as well as other off balance sheet

commitments and their liabilities and exposures. This will help in

ascertaining their potential losses and the capacity of the bank to

absorb it while determining the CAR and its financial health.

  1. The Committee are constrained to observe that the RBI does not seem

to have quite succeeded, as a regulator, in so far as implementation

and enforcement in letter and spirit of its own guidelines, on stressed

loans is concerned. Mere issuing of guidelines by RBI does not seem to

have yielded the desired results. The Committee would, therefore, expect

RBI to monitor and follow it up with the banks and financial

institutions on a regular basis till concrete outcomes materialise.

Such a pro-active action by RBI will also enable it to review the

guidelines, whenever required and plug loopholes, if any. As the

Committee would not like the RBI to be a passive regulator, when major

lapses occur in banks, it would be in the fitness of things if RBI

exercises its regulatory powers vis- a-vis banks to take punitive action

in cases of default and to enforce their guidelines. The Committee also

believe that RBI as a regulator should have its regulatory role well

delineated and thus not have its Director in the Board(s) of the Banks

as part of their management, as conflict of interest may lead to

avoidable laxity.

  1. The Committee would thus recommend that forensic audit of such

loans (restructured loans becoming bad debts) as well as willful

defaults be immediately undertaken.

  1. . Therefore, appropriate system should be evolved and guidelines be

prepared to take charge of assets and management of such failed CDR

companies, while initiating action against such management. Further,

disposal of the assets should be given priority.

  1. Considering the non-efficacy of the CDR mechanism, the Committee

believes that the RBI’s scheme for Strategic Debt Restructuring (SDR),

which empowers banks to take control of defaulting entity and its assets by

converting loan into equity, may armor the banks with an additional tool to

cope with their NPAs. A change in management must be made

mandatory in such cases involving willful default or sheer inability on

the part of the promoters, where they have diverted funds and no

redemption is possible. The Committee would however like to put a

caveat here that the SDR mechanism should be used sparingly so that

it does not become a smoke screen for large scale write-offs. It is

necessary that even after SDR, the penal consequences for a wilful

defaulter should continue to operate.

  1. The Committee note that bulk of bad loans may be linked to firms that are

struck with over-capacity and weak demand and are, therefore, simply

unable to service their debt. The prolonged slowdown in the economy has

eroded the market for distressed assets so much so that even Asset

Reconstruction Companies (ARCs) have found it hard to off load them. The

Committee would, however, still suggest that the RBI should consider such

a dispensation that allows banks to absorb their write-off losses in a

staggered manner, can help them restore their balance sheets to their

normal health, while ridding the banking sector of its toxicity.

  1. The Committee notes that the value of cases relating to bad loans awaiting

resolution and recovery through DRTs across the Country has touched an

all time high of around Rs. 3.75 lakh crore. The recovery of NPAs through

DRT and SARFAESI Acts have shown steady decline from 2010-11 through

2013-14. The recovery through the channel of DRT Act has shown constant

decline from 21.55% in 2010-11 (Amount recovered Rs. 2,338 crores

against cases filed for the amount of Rs. 10,849 crores) to 9.83% in 2013-

14(Amount recovered Rs. 4,460 crores as against cases filed for the amount

of Rs. 45,350 crores). Similarly, under the SARFAESI Act, the recovery of

NPAs has dipped from 36.46% in 2010-11 (Amount recovered Rs. 7,928

crores against cases filed for the amount of Rs.21,745 crores) to 25.56% in

2013-14(Amount recovered Rs. 22,178 crores against cases filed for the

amount of Rs. 86,783 crores). These facts thus present a rather dismal

picture of the actual working of DRTs and the efficacy of the SARFAESI Act

per se. Time-bound disposal of cases thus becomes the need of the hour.

A distinction now needs to be drawn between “wilful defaulters” and

other defaulters in the procedures prescribed under the relevant Acts

and accordingly, “willfully defaulting” promoters must be dealt with

sternly and promptly. Banks must be fully empowered to recover their

dues promptly after necessary orders are passed by the Tribunal. The

Committee would strongly recommend a thorough overhaul of the

legal regime governing debt recovery, which may include stringent

provisions to safeguard public money. Furthermore, there is a need for

authentic and large Credit data base including posting the Credit

Status of “wilful defaulters” in public domain.

In this connection, the Committee would also recommend certain specific

changes / amendments in the Debt Recovery dispensation as mentionedbelow:

  1. In DRT summary procedure should be followed. In case of appeal

against the order of recovery officer a provision for deposit of

substantial amount i.e. minimum 50% of the amount claimed and

costs should be there

  1. A provision for disclosure of assets on affidavit by the defendants

needs to be incorporated.

III. The important issue of priority of charge should be clearly

decided. In this regard, priority of secured creditor should be

treated to be of universal priority.

  1. Rule 9 of Security Interest Rules provides for 30 days’ notice

required before sale. In case of second or subsequent sale, 30

days’notice, again, is a wasteful exercise. Therefore, a specific

provision is required on subsequent attempt of sale by giving

notice of 7 days. In case of sale by Private equity provision is

required stating that private sale shall be on terms settled

between the secured creditor and the purchaser.

  1. Stays/Exparte stays, if granted, should be for a short and specific

period and on condition of payment of dues or as warranted as per

the facts of the case.

  1. Provisions for faster foreclosure of mortgages need to be


VII. More DRTs for better distribution and expeditious disposal of

cases should be set up and adequate infrastructure provided to



VIII. One DRT/Presiding Officer should have a prescribed maximum of

only 1000 OAs for disposal.

  1. The Committee would also like the RBI to conduct an objective

evaluation of the efficacy of different instruments / schemes

implemented by banks to deal with their NPAs / Stressed assets like

OTS, CDR, SDR, 5 by 25 scheme, ARC sale etc., so that pitfalls can be

identified and plugged with a view to making these efforts more


It is imperative that the Govt and IBA should take concrete steps on the

recommendations and also request the RBI to implement the

recommendations. This will lead to a turnaround in the Banking Industry.

There will not be any need for infusion of further capital and the profitability

will improve tremendously.

It may be inferred from the above that the law makers of this country are having

diagonally opposite but very objective views on the NPA contrary to the views held

by the Government and controller attempting to blame the BANKS squarely and

be held responsible for the NPA.)

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