Two of India’s financial sector watchdogs on Saturday took a grim view of the stress in the banking sector on account of loan defaults, with the one dealing with equity markets announcing on Saturday a ban on wilful perpetrators from raising public money.
“All wilful loan defaulters will stand disqualified from the board positions as listed companies under the new rules,” Securities and Exchange Board of India (SEBI) Chairman U.K. Sinha said at a press conference here after the watchdog’s board meeting.
Sinha also said tainted people will neither be allowed to take over the management control of other listed companies, nor permitted to float mutual funds, debt or equity securities, or similar money-raising instruments.
In this regard, he said, the criteria for determining who constitutes a “fit and proper” person in the regulations was also being amended. The bar on wilful defaulters is also on floating instruments like non-convertible debentures and redeemable preference shares.
During the board meeting, which was also addressed by Finance Minister Arun Jaitley, officials were asked to remain alert on the supervision of the markets, particularly in the wake of global developments.
The issue of loan defaulters at the watchdog’s meeting followed the matter being raised at the board of governors of the Reserve Bank of India (RBI) meeting here with the top brass of the finance ministry.
One of the main topics of discussion at the RBI meeting was the issue of non-performing assets of banks — which primarily concern loan defaults and wilful defaults by industry.
“Non-performing assets are of two types,” Jaitley said after the RBI meeting, explaining that one is created as the result of a slowdown that can be recovered once the economy turns around, while the other is on account of individual misdemeanours.
“We don’t want to create a situation by overstating these incidents that, in turn, will hamper activities,” he said, alluding that banks should not be deterred from bona fide fresh lending. “But the rising levels of NPAs is a matter of concern for all of us.”
RBI Governor Raghuram Rajan said a due process will be followed in defining wilful defaulters.
As per recent RBI estimates, the total exposure of commercial banks in terms of gross NPAs, the rescheduled loans and write-offs was 14.1 percent of deposits that works out to around Rs.9,455 billion (around Rs.9.5 lakh crore).
The government is also facing flak following the unexpected exit of industrialist Vijay Mallya from the country, even as a consortium of 17 banks led by the State Bank of India, were seeking repayment of around Rs.9,000 crore that he has borrowed from them.