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RBI extends time for bad loan recovery

The Reserve Bank of India (RBI) said on Wednesday it had extended till June 30 the time given to commercial state-run banks to decide on one-time compromise settlements on bad loans.

This would apply to applications from borrowers received up to March 31, it said.

Earlier the RBI had asked banks to take decisions on compromise settlements before March 31.

"The feedback received by the Reserve Bank indicated that the banks are likely to receive a large number of applications during the last week of March before the expiry of the deadline of March 31, 2001," a central bank statement said.

"To ensure maximum recovery under the one-time settlement scheme, banks are advised that they should take decisions on all the applications received up to March 31, 2001 by June 30, 2001," it said.

In July 2000, the RBI had issued guidelines allowing public sector banks to reduce their bad loans through one-time compromise settlements with their borrowers.

Indian public sector banks, which account for more than 75 per cent of the banking industry's loans and advances, have traditionally been plagued by a high level of bad loans.

The Indian banking industry's gross non-performing assets (NPAs), or loans that yield no earnings, totalled 608.41 billion rupees ($13.06 billion) at the end of March 2000, up from 587.22 billion a year earlier.

That level, adjusted for provisions, translated into a net NPA level of some eight percent of net advances for the industry.

Bankers attribute the high level of bad loans to political interference and to government guidelines, which set banks targets on the amounts that they have to lend to sectors identified by the government as requiring support. These include the farm sector and small businesses.

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