Empowering banks to seize property of defaulters has resulted in reducing bad loans of various banks from 14 per cent to two per cent in last one decade, Finance Minister Arun Jaitley said today. He said a law was enacted in 2002 empowering banks to seize properties of loan defaulters and it has helped in bringing down bad loans, resulting in total gross non-performing assets ratio going down from 14 per cent to two per cent in ten years.
"The Act is used against the industries substantially. After the government brought the law to seize the property of the loan defaulters, NPA, which was 14 per cent in 2002, has come down to 2 per cent in about 2-3 years. But after the economic slow down in last 2-3 years, NPA has again gone up to 4 per cent," he said during Question Hour.
Jaitley said the banks take action against loan defaulters only when the situation really becomes bad and when the banks realise that there is no chance of recovery of loan or the borrower has no capability to repay the loan. The Finance Minister said banks initially always try to give chance and time to restructure and run the industry or the agriculture properly. "If they (borrowers) can do that, there is no need to seize the property," he said. He said banks take action against individual loan defaulter -- be an industrialist or a farmer -- as per the guidelines issued by RBI from time to time.