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  Business   New panel may settle bad debts

New panel may settle bad debts

REUTERS
Published : May 6, 2016, 2:18 am IST
Updated : May 6, 2016, 2:18 am IST

India is considering setting up an independent panel to help state-owned banks negotiate settlements with big businesses on bad loans, in order to shield bankers from a populist backlash they say is h

India is considering setting up an independent panel to help state-owned banks negotiate settlements with big businesses on bad loans, in order to shield bankers from a populist backlash they say is hobbling efforts to clean up their balance sheets.

India’s $121 billion troubled debt pile, over $100 billion of which is on the books of state-owned banks, has come under close scrutiny from prosecutors, the media and politicians. Some have blamed banks for going too easy on corporate tycoons, and do not want taxpayers propping up the struggling banking sector.

The proposal, being examined by the government and in its early stages, would give the panel power to define the “haircut” a bank should face on a loan gone sour, protecting bankers from critics who want failed Indian firms to pay back in full, two finance ministry and two central bank officials said.

The proposal envisages setting up a panel comprising leading bankers and government and RBI officials, to review some larger outstanding loans and try to arrive at a settlement, finance ministry and RBI officials said. There is also a suggestion to include judges, they added.

The idea was first floated in 2014 after Modi took office, but did not gain much traction then.

“Banks have been very reluctant to take a haircut where they face newspaper criticism,” said a second senior official, who is familiar with discussions on the panel.

The second official added that the proposal had run into hurdles already, however, amid questions over how it would fit into India’s existing legal framework.

Negotiated settlements, in which a bank takes a writedown on a loan gone bad, can help speed up the process. They would allow banks to quickly establish how much money they would need to bolster their balance sheets.

Fear of bad headlines was one reason why state-run banks declined to consider Vijay Mallya’s offer to pay up to $900 million in tranches to settle about $1.4 billion his defunct Kingfisher Airlines owed, sources said.

Location: India, Delhi, New Delhi