Banks to waive off huge interest dues on NPAs

Banks to waive off huge interest dues on NPAs
SANTANU GHOSH

AUGUST 11: In a move which would lure the defaulters of banks to pay up quickly, the Reserve Bank of India (RBI) has directed the banks to go for one-time settlement of the ledger account on those accounts which have become non-performing assets (NPAs) from March 31, 1997.

This implies that the defaulters would now need to pay interest on their accounts till the time the asset was performing. The banks would now waive off the interest from the time the assets have become NPAs. The settlement will be on the interest debited in the account. This also implies that the liquidated damages, which includes the penal interest rates, would also be waived off.

This directive from the RBI has been issued through a recent circular on the NPAs which the apex bank has released recently. According to banking sources, though the move by the apex bank might lure the defaulters to settle their accounts with the banks due to waiving off of the interest during its period of non-performing, the banks will loose out in the bargain.

Earlier, the banks were allowed to bargain with their customers while settling the NPA accounts. Failing negotiations the banks use to move the debt recovery tribunals (DRTs) for the recovery of the NPAs. According to sources, the banks also used to negotiate with the customers on the interest amount which they should pay during the period the asset has become NPA. "Depending on the client we use to decide on the amount of the interest to be paid during the one time settlement. If the customer was in a position to pay the interest rate they we would charge them," officials in banks added.

Now with the recent circular by the RBI, it has become mandatory for the banks to waive off the interests dues. Though this would help the banks in reducing the NPAs, the defaulters stand to gain in the bargain, sources added. The move would also imply an uniform treatment for all the NPAs, independent of the payability of the clients.

The recent step by the RBI is also an outcome of the series of meetings which the Finance Minister had earlier held with the bank chiefs on NPAs. The finance ministry had directed the apex bank to frame guidelines to ensure quick recovery of the NPAs. This circular is the first of the series of circulars expected from the RBI on the NPAs.

Elaborating on the legislative amendments to reduce the NPAs, banking sources said that in an effort to plug the legal loopholes in the pending amendments to the Banking Acts, the finance ministry has referred the proposals to the Attorney General of India.

The amendments which has been referred to the Attorney General also include the proposal to dilute the government stake in the PSU banks to 33 per cent. The entire set of proposal is likely to be put forward before the Cabinet after incorporating the changes suggested by the Attorney General.

The Cabinet would then propose to introduce a bill to bring about the amendments. According to sources, this is most likely to take place in the next session of the Parliament.

The Delhi High Court on Thursday issued show-cause notices to Union Finance Ministry, Reserve Bank of India (RBI) and CBI asking them to file replies why a petition seeking action against officials allegedly responsible for creating non-performing assets (NPA) worth Rs 51,000 core in various banks, should not be admitted.