Getting Corporate Loans to Get Tougher

DEFAULTERS BEWARE Banks form a consortium to screen companies seeking loans for R 150 crore or more

With a surge in the level of bad assets in the banking system, banks have decided to form a consortium to monitor any company seeking loans worth ` 150 crore or more. Such companies may now have to go through a rigorous drill, as the screening process would get tighter.

In case of a default, no single bank would have to bear the burden if this model is applied, an official source said. “We have decided to adopt this model as no bank would be hit badly in the case of default,” M Narendra, chairman and managing director, Indian Overseas Bank said.
The gross non-performing assets, or NPAs, in the banking system has touched 5%, becoming a cause of concern for the Reserve Bank of India (RBI) and the government.

The finance ministry and the RBI have also directed banks to get tough with the wilful defaulters. Banks could even ask promoters of the companies seeking corporate debt restructuring (CDR) for a list of personal assets. This will be charged to the lending banks to ensure that banks have sufficient collateral to cover their loans in the case of defaults.

Banks have cumulatively recast loan amounting to ` 2.5 trillion under the CDR exercise, a recent BCG-Ficci report has pointed out. In 2012-13, banks restructured loans worth ` 75,000 crore under CDR, almost double of what was done in the previous financial year. “This issue of NPAs has been discussed at length with senior finance ministry officials and bank chairpersons and all steps would be taken to address it,” the source said.

Hindustan Times, New Delhi, 12-09-2013