MUMBAI, February 23: The Indian Banks' Association has taken a leaf from the pages of the first Narasimham panel report and suggested the creation of an asset reconstruction fund (ARF) to take over non-performing assets (NPAs) of weak banks at a discount.The first Narasimham committee report -- which set the agenda for the financial sector reforms in early '90s -- had advocated the formation of an ARF, which found favour neither with the Reserve Bank nor the finance ministry.
Weak banks have been the worst hit on account of the ministry's reluctance to set up such a fund.
Rating agency Icra had suggested the formation of an ARF in its revival package for the Calcutta-based Uco Bank.
IBA has said banks are saddled with huge NPAs without any respite. Given the weak tools of delivery, despite their best efforts, banks unable to control rising NPAs, the bankers' body said.
According to IBA, ARF should be selectively introduced to help weak banks to shore up their capital and reduce NPAs. Theassociation is in favour of special powers to be given to ARF on the lines of States Financial Corporation's Act 1951. It has also called for waiver of stamp duty for transfer of assets to ARF.
IBA has also said that it is essential that banks be empowered to recover loans by using suitable out-of-court mechanisms.
As the ultimate health of banks would depend upon recovery and control over NPAs, this major problem needs to be addressed conspicuously to reduce their drag on the profitability of the banks, it said.
The association said a systematic pressure has to be created on the borrowers to honour their repayment commitments on time. "The bank dues should be given the status of centre dues to speed up enforcement of recovery," it said.
It has also asked the committee to suggest the empowerment of banks to enforce recovery and simultaneously impress upon the centre that they should create pressure on borrowers to pay.
One of the major factors coming in the way of maintaining higher capital adequacyratio is the piling up of NPAs, said IBA in its presentation to the committee. IBA has also said that the laws relating to enforcement of recovery of dues should be made bank-friendly so that the legal environment becomes conducive for operations. The laws relating to enforcement of bank securities, mortgages and foreclosures need to be amended, the bankers' body said.
It has also requested the committee to suggest the redrafting of the Negotiable Instruments Act, Companies Act, Transfer of Property Act, Indian Stamp Act and such other laws enacted earlier so that the legal environment moves in tandem with the needs of the banking sector.
IBA has said that in the same way that banks are operating on high composition of NPAs and are required to make provisions annually, tax remissions should be granted against such provisions, so that the drag on account of NPAs can be reduced.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
