NEW DELHI: The government is mulling fast-track courts to try loan default cases of over Rs 100 crore as part of a plan to reduce the pileup of bad loans at state-run banks.

The finance ministry has set up a committee headed by VK Bhasin, former secretary in the law ministry’s legal department, to suggest measures to deal with high-value willful defaulters.
“The committee will also revisit recovery laws to make them more effective,” a senior government official said on condition of anonymity. There are over 40,000 cases worth Rs 1.73 lakh crore pending before various debt recovery tribunals.

“These (fast-track) courts will have the mandate to settle issues within a time frame,” the official said, adding that they will be empowered to auction personal assets of promoters to recover money.

The finance ministry is also looking at ways to make promoters accountable for the defaults.

“Promoters often hide behind a corporate veil and take no responsibility for failed ventures. The committee will suggest legal routes to make such promoters accountable,” the official said. The top 30 non-performing accounts of state-run banks account for 40.2 per cent of their gross bad loans.

In 2013, bank unions had put out a list of top corporate defaulters, which included Kingfisher Airlines, Winsome Diamond, Zoom Developers and Electrotherm India.

Gross NPAs of public sector banks rose to 4.44 per cent in March from 3.84 per cent in the year-ago month. “In the case of Kingfisher Airlines, the banks could not seize the promoter’s personal assets because of the existing legal complications.

We need to work out a mechanism where there should not be a rich promoter and an ailing company,” said one of the committee members, which, besides banks, has representation from Indian Banks’ Association.

The government is also looking to set up a national asset management company that could act as a nodal agency to deal with the problem of bad loans.

“Any such structure should be empowered with greater legal rights to take swift decisions. A new legislation with penal provisions will deter genuine promoters from willful default,” said MP Shorawala, independent director at Central Bank.

The finance ministry has directed banks to recover at least 10 per cent of their loss assets this fiscal. The highest NPAs in state-run banks, at 7.21 per cent of advances, are in loans to SMEs followed by agriculture at 5.99 per cent