Government nominee not available on Loan Sanction Committees of banks: Sources

According to the sources, under the Banking Act, the banks are not obliged to report loans that have been sanctioned. Section 45 of the Act allows banks to keep the information confidential.

NPAs went up from 4.62% in 2014-15 to 7.79% in 2015-16 and were as high as 10.41% by December 2017. Image source: Inhouse

At a time when the Indian banking sector is struggling with the problem of large bank scams as well as Non-Performing Assets (NPAs), it has been revealed that on the loan sanction committees of banks, which is an independent body, there are no government nominees. At present 12 companies are responsible for NPAs of more than 1 lakh 75 thousand crores. Sources have informed Zee Business's Alok Priyadarshi that, "The management committee is completely responsible for sanctioning of loans of more than Rs 200 crore to anyone. It says, the loan sanction committee of the banks have no representative from the government and this absence of the government nominee makes it clear that the government has nothing to do with the corporate affairs of the bank."

According to the sources, under the Banking Act, the banks are not obliged to report loans that have been sanctioned. Section 45 of the Act allows banks to keep the information confidential.

The regulator has the details of all loans that are more than Rs 5 crore.

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In addition, the issues related to regulations and ethics are a root cause of the problem.

The sources added that the government is treating this emergency situation as an opportunity to correct the existing loopholes in the banking system of the country.

Background
The Asset Quality Review being conducted by the Reserve Bank of India since 2015 has helped the central bank to recognise the size of NPAs, which was being considered as standard assets by the banks till then.

Indeed, NPAs went up from 4.62% in 2014-15 to 7.79% in 2015-16 and were as high as 10.41% by December 2017.

Stressed assets have registered a steady growth since 2011, but if we were to look at NPAs, the growth was muted until 2014 and has been more dramatic, particularly after 2015-16.

India ranks 103 in the world to resolve insolvency cases and takes 4.3 years to solve a case. Notably, Indian banks are able to recover only 26% of the bad loan.

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