New Delhi, May 11 2017

As the bad loans of banks zoom to more than Rs 8 lakh crore this fiscal, the government has sought from large institutions such as Life Insurance Corporation (LIC) with rising debts to come up with action plan to minimise defaults on corporate loans.

India’s largest insurer, LIC’s non-performing assets have risen by over 26% to nearly Rs 20,000 crore at the end of last year from a little over Rs 15,000 crore at the end of 2016.

The move, along with the ordinance issued last week to give banks the freedom to decide on haircut, is expected to reduce the burden on loan books of financial institutions.

A senior Finance Ministry official said the non-performing assets of the public sector and private sector banks combined have risen to more that Rs 8 lakh crore as of now, and the government is taking all measures possible to deal with stressed assets of the banks.

He said the ordinance may have vested the Reserve Bank of India with more powers to deal with stressed assets but the central bank will not decide on how much haircut a bank is going to take in a particular default case.

“It will completely be a commercial decision in the hands of banks. The RBI will merely elaborate the process,” he said.

The ordinance according to the official is an enabling provision to help the lenders and provide a legal backing. The decision on how much claim a bank will give up on part of a borrower would depend on banks themselves.

[The Deccan Herald]