The RBI data revealed the rise in Stressed assets of PSU Banks the most with 14% of Advances in September 2015 compared to 4.6% for private ones. The Net NPA stood at Rs. 2,05,024 crore, while the Gross NPA were Rs. 3,69,990 cr with PNB reporting close to a third of its NPA, Rs. 3,554 cr owing from top 10 willful defaulters including 764 companies and the value of Rs. 9,204 cr as unpaid loans. NPA is an advance/loan asset which becomes Non-Performing when it ceases to generate income, i.e. interest, fees, commission, or any other dues for bank for more than 90 days. Such high incidence of NPAs raises questions on the credibility of mechanism to deal with NPA.

The main reason being shifting of ‘tech-savy’ Indians towards private sector due to its launch of mobile applications, e-wallets and net banking facility, the other one being a lethargic working style and aging workforce. The most important being the lack of governance in PSBs in the way they are governed with special context to the post of Chairman cum MD as noticed in irregularities and frauds of Syndicate Bank. Also, the advertisement of PSBs such as convening of Board Meetings, shareholder meetings, committee meetings, e-voting, postal ballot process, payment of dividend, interest, etc. all are issued under the signature of Managing Director whereas importance is to be given to Company Secretaries to verify, vouch and take care of all related compliances. NPA, an unavoidable burden for the banking industry, can be reduced to a low level by proper ‘due diligence’ mechanism on borrowers to be conducted by Practicing Company Secretary certifying the compliance of all relevant laws at zonal and headquarters level of PSUs. Practicing CS is to be engaged at various zonal levels for proper compliance of matters relating to unclaimed deposit holders, unpaid interest thereon.

The concept of ‘Secretarial Audit’, a post-facto exercise comprising detailed verification of formalities, procedures, maintenance of registers and records, etc should came out quickly by the RBI in consultation with Indian Banks’ Association (IBA), to improve level of compliance which would benefit all deposit holders and shareholders just as conducting statutory and cost audit by CA firms. Forensic Audit, an evidential audit, should also be made mandatory for specific class of borrowers. Since Private Sector banks already have a mandatory requirement to conduct Secretarial Audit as per the provisions of Companies Act, 2013, there is a need to introduce the same in PSBs seeing its high incidence of NPAs.

An RBI panel during last financial year called for a drastic change in governance structure in tenure of chairman, setting up of Board and govt. stake. Another positive note is the announcement of Bankruptcy Code which will help banks in recovery of bad loans but it will take more than two years to be implemented after it is passed. Also, a suggestion of RBI for initiation of a bank investment company to hold equity stakes in PSBs, but was not addressed in the last Budget. “On one hand, the country's economy is growing fast and competing with economic superpowers and, on the other hand, the rising trend of NPAs has the potential to damage this growth story,” RBI said. PSBs are in very real danger of losing not only their market share but also their identity unless the government intervenes with surgical precision and alacrity.
 

To tackle the problem of stressed assets in banking sector, the Finance Minister, in the Union Budget 2016-17 propose to make amendments in SARFAESI Act, 2002 to enable sponsor of Asset Reconstruction Companies (ARCs) to hold upto 100% stake in ARC and permit non-institutional investors to invest in securitization receipts. Also, in an effort to rational tax regime for securitization trusts, including trusts of ARCs, Govt. has decided to give a complete pass-through of Income tax to these entities. The respective investors in theses trusts will now become the only point of taxation, thereby eliminating the prevalent risk of double taxation.

A comprehensive ‘Plan for Revamping of Public Sector Banks’, Indradhanush, is already under implementation by the Govt. To support banks in the efforts of reducing stressed assets and to support credit growth, an allocation of Rs. 25,000 cr. is proposed in BE 2016-17 towards recapitalization of PSBs. Also, the additional capital funds required, if any, will be taken care of by the FM. The Bank Board Bureau will be operationalized during 2016-17 with a roadmap for consolidation to be spelt out.

The process of reducing stake in IDBI bank to below 50% has already been started for allowing the bank to be governed more professionally. Also, in an effort to reduce the number of cases pending before DRTs and speedier resolution of stressed assets, DRTs will be strengthened with focus on improving existing infrastructure, including computerized processing of court cases.

The Govt. passed the Insolvency and Bankruptcy Code in Parliament in 2014 to deal with insolvency of corporate entities and natural persons. Before implementation, it requires creating insolvency practitioners framework, making appointments to NCLT and the Board, framing rules and building capacity in the system which will take time. The initiatives taken by FM in the Budget 2016-17 for speedy resolution of PSB NPAs will reduce its stressed assets to the great extent in the times to come.