Once bitten, twice shy: After Mallya debacle, govt directs banks to sell guarantees if companies default

New Delhi: In order to effectively deal with loan default cases similar to that of Vijay Mallya in the future, government on Friday directed public sector banks(PSBs) to immediately invoke personal guarantees of promoter directors and recover loans from them in case the companies fail to repay.

Issuing the directive to heads of PSBs, the Finance Ministry regretted that they seldom recover loan from guarantors in case of loan default by companies.

"It has been observed that there are a less number of cases where action has been taken for recovery against guarantors for attachment of assets owned by them and sell the same for recovery of defaulted loan," it said while issuing the directive in consultation with the RBI.

The ministry further told banks that "it would be pru

Representative image. Reuters

Representative image. Reuters

dent to take steps against guarantors immediately when no sign of revival is visible".

Asking banks to approach Debt Recovery Tribunal (DRT), it said action against guarantors should be taken under SARFAESI Act, Indian Contract Act and relevant legislations.

Exit of beleaguered industrialist Mallya to London early this month created huge uproar in Parliament as well as outside. Various companies associated with him owe over Rs 9,000 crore to different banks.

Mallya and his group firms are being probed by several agencies including Enforcement Directorate.

Gross NPAs of PSBs rose to Rs 3.61 lakh crore while that of private lenders were at Rs 39,859 crore at the end of December 2015.


Updated Date: Mar 18, 2016 19:57 PM

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