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Finance Ministry asked Indian Bank Association to set up Oversight Mechanism

Jun 7, 2013 17:24 IST

The Finance ministry on 6 June 2013 has asked the Indian Banks' Association to set up an independent body to manage the corporate debt restructuring (CDR) mechanism to restrict the use of loan restructuring mechanism only to deserving cases.

The decision was taken in light of increasing number of debt restructurings over the past two years. The effect was that, the banks and their clients are taking undue advantage of the CDR mechanism, giving in the issue of non-performing assets’ (NPA) formation.

Now, the banks should have the committee which will consist of an expert from the legal field, investigative agencies and finance professional, and the task will be to make sure that there will not be any scope for allegations.

The government will set up an independent oversight mechanism which will not have any government representative or serving banker but is supposed to have some experts who inspect from the accuracy point of view whether the case brought up is genuine.

The oversight mechanism committee will act as only an advisory body, will help the bank vet a particular case going to the committee which will not be mandatory for a bank.

It is important to note that Under Corporate debt Restructuring CDR, there were 106 cases of restructured loans, of  76470 crore rupees  in 2012-13,  a rise from 50 cases (exposure of 39600 crore Rupees) in 2011-12. Also, apart from the CDR platform, lenders had also gone for significant recast at the bilateral level during the period.

As per finance ministry estimate, if all restructured loans are classified as NPA, the gross level of these for public sector banks (PSBs) would shoot up to 11.6 per cent of gross advances, from 4.2 per cent at the end of December 2013. The estimate suggests reorganized standard advances formed 7.4 per cent of all advances for PSBs.

Is this article important for exams ? Yes33 People Agreed
Read more Current Affairs on: Finance Ministry , Indian Bank Association , Oversight Mechanism

DISCLAIMER: JPL and its affiliates shall have no liability for any views, thoughts and comments expressed on this article.

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