Arun Jaitley in Lok Sabha Thursday. (Source: PTI Photo) Arun Jaitley in Lok Sabha Thursday. (Source: PTI Photo)

The government will soon come up with a central law to deal with chit funds, Finance Minister Arun Jaitley said Thursday. “SEBI is looking into the existing chit fund cases. There are state laws to deal with them in Bengal and Odisha. But what to do with those who run operations throughout the country? We are drafting a central law and very soon we will bring it before you,” Jaitley said while replying to a debate on the Banking Regulation (Amendment) Bill 2017 in Lok Sabha. In the course of his reply, Jaitley said the RBI will begin resolving bad loans. He also agreed that public sector banks that honestly try to address nonperforming assets face the anxiety of being questioned by investigating agencies later.

Lok Sabha passed the bill, which seeks to replace an ordinance that had conferred powers on the Centre to authorise the RBI to issue directions to banks to initiate insolvency proceedings against loan defaulters. During the debate, the Opposition had wanted to know what steps the government would take to deal with chit funds in which investors were duped. In his last budget, Jaitley had promised to amend the Multi-state Cooperative Act to protect investors.

Jaitley said chit fund schemes had attracted investors by offering nearly 1-1.5% interest higher than the nationalised banks. Pointing out that the government had launched safer investment options like the LIC’s Pension Scheme, he said at a time when inflation was running high at 10%, bank deposit rates were high at 9%. But loans were extended by banks at 14-15% interest and with such high rates, global industrial investments will not come in. Jaitley said the interest rate will become reasonable gradually and pension funds are safe investments.

He asked political parties to rise above political differences to address the problem of nonperforming assets of public sector banks. He said the RBI, which has identified 12 large loan defaulters who account for 25% of all bad loans in the banking sector, may refer more cases to the banks to initiate insolvency proceedings against defaulters. He said certain provisions of the Prevention of Corruption Act are deterring certain banks from taking honest decisions to take innovative steps. “Some of our laws, as of today, are obsolete. One of the reasons why this is not happening is the fear of the language of section 13 of the Prevention of Corruption Act. An honest decision taken by a banker with an honest motivation based on commercial considerations, five years later will come up before an investigative agency which may say why did you settle like this and not settle like this,” he said.

About bad loans, he said, “We will shortly see the process of resolution coming… Any form of resolution is possible… We need to save the companies, the jobs and we need liquid companies to pay the banks,” he said.

NABARD Bill

Lok Sabha also passed the National Bank for Agriculture and Rural Development (Amendment) Bill that proposes an increase in the capital of NABARD from Rs 5,000 crore to Rs 30,000 crore by the government after consultations with the RBI. It also proposes to transfer RBI’s stake to the government. Congress’s Anto Antony objected: “The government… is helping the large corporate groups to get loans at a lower interest rate. The RBI is a shareholder and is the regulator of NABARD. I am afraid that the government’s move to free NABARD from the control of RBI will eventually lead to functioning of NABARD in its own way without any norms.”

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