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C. Shivkumar

BANGALORE, Feb. 5

Public and private sector banks have sought States' cooperation in recovering outstanding dues from loan defaulters, including State-owned public sector entities through the Securitisation Act of 2002.

Sources said that banks had expressed this view in the context of some States seeking exemption from action under the Securitisation Act of 2002 for some categories of borrowers. The States had sought this reprieve fearing political ramifications. This is especially in States where recoveries are being made even as Assembly elections are drawing near.

However, top-banking officials said they had conveyed that only in genuine cases would a reprieve be considered. Besides, such reprieves would be considered only for farm loans, where the Reserve Bank of India and the Ministry of Finance had already recommended rescheduling and restructuring of the loans in view of the severe drought situation.

The sources said that in the case of the non-performing assets categorised as wilful defaults, none of the banks was prepared to consider any reprieve. Instead the option would be to invoke the physical asset cover or the guarantees or both. This would include some of the State Government-owned public sector companies, including utilities.

But the sources said that any reprieve for some of the State-owned utilities would be considered only if the defaults were on account of circumstances beyond the control of the borrowers. This was especially in the case of some of the power utilities, where defaults were attributed to technical reasons, including non-revision of tariffs by the State Governments/ regulatory commissions.

But the sources added, that in some of the cases, banks were prepared to invoke the State Government guarantees to recover their dues. Discussions on the subject were already under way with RBI, the sources said and only after the clearance, would the banks go ahead and invoke the loan guarantees.

Already on some of the advances made to the State Governments, the sources said banks had stopped booking incomes according to the guidelines issued by RBI in December 2002. The sources said that where the States failEd to honour their guarantee obligations, recovery proceeding would be initiated or some of the loan assets would be transferred to the Asset Reconstruction Company for recoveries.

Besides they would also be brought within the group approach guidelines, implying that funds to other PSUs could be choked off in the State in cases where there were outstanding obligations. The group approach has so far not been applied to any of the State public sector companies, though both financial instituions and banks have been threatening to apply them to pressure States to honour commitments.

The sources also said that the cooperation of State Governments would have a positive impact on their respective revenues. This was because high recoveries would translate into profits for banks and increase the income tax liabilities. Such taxes, in turn, would revert back to the States as part of their share in the Central taxes, they added.

Consequently States faced with tax shortfalls would be compensated to some extent for the shortfalls in their internal tax receipts, the sources added. Most States in the country are faced with revenue shortfalls in view of slippages in sales tax receipts.

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