NPA Ordinance to help tackle mounting bad loans:Top Official

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the Ordinance on NPAs will define the way forward in this regard
the Ordinance on NPAs will define the way forward in this regard

Mumbai : Although the Reserve Bank of India (RBI) and the government have been working to tackle the problems of mounting bad loans, the Ordinance on NPAs will define the way forward in this regard, a top official said on Friday.

Terming it as "a very interesting piece" of legislation signed by President Pranab Mukerjee on Friday, RBI Executive Director Sudarshan Sen said efforts are on to resolve the problem of Non Performing Assets (NPAs).

However, he warned: "This is a continuing process...nothing happens overnight. These are hard problems, these are difficult problems, but we are determined to solve them."

Sen was speaking at the inauguration of an Assocham Global Factoring Summit here.

Discussing the factoring business, he said despite enactment of the Factoring Regulation Act in 2011, it has still not taken off.

Post-enactment, six Non Banking Financial Companies (NBFC) had registered with the RBI of which three are systemically important.

Sen said the size of the sector at the last count was approximately Rs 3,200 crore which declined over the previous year due to various factors.

"What is of concern also is the high NPAs in the sector...With 29 per cent gross NPA ratio and 11 per cent net NPA ratio, this is a little alarming as is also the negative ROA (return on assets) and ROE (return on equity), so these areas need to be addressed," urged Sen.

Among the factors hindering healthy function of factors was non-availability of recourse under the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI).

However, last year the benefit of Enforcement of Security Interest was extended to all systemically important NBFCs, including NBFC factors, which is expected to improve recovery by factors and reduce their NPA levels, he said.

Referring to RBI's Trade Receivables Discounting System (TReDS), Sen said that it will not only facilitate discounting of invoices and bills of exchange but also greatly facilitate the factoring business.

He added that it will be a huge source of information for tapping potential clients.

About the implementation of Insolvency and Bankruptcy Code and the status of a factor -- whether financial creditor or operational creditor, Sen said the definitions might suggest that factor would be treated as an 'operational creditor'.