The government, in order to implement the joint lending mechanism at the earliest, reportedly has decided to drop controversial clause of treating a borrower's accounts with all banks as non-performing if the accountholder defaults on payment to one bank. According to the proposal, in case a loan becomes non-performing for one bank, all the member banks of the consortium would classify the loan as a non-performing asset (NPA).
The banks will now follow the existing regulatory prescription of RBI in the case. As per the Reserve Bank's guidelines, if a borrower's account turns non-performing with one bank, it does not affect the status of the borrower's accounts with other lenders.
Under joint lending agreement (JLA), state-run banks will lend in a consortium to borrowers seeking credit over Rs 150 crore by way of a term loan, working capital and non-fund-based facilities. However, it will be mandatory for banks to bring all exposures of a borrower under the JLA within six months of its implementation.
The government hopes that this arrangement, designed to insulate state-run banks from sticky loans, will stop borrowers from seeking multiple loans from different banks against inadequate collaterals.
