Finance Ministry has asked banks to take all possible penal action including lodging first information report against wilful defaulters to deal with the rising non-performing assets, which touched Rs 1.76 lakh crore (Rs 1.76 trillion) for the state-owned banks at the end of June 2013.
Banks have been asked to take strict action against wilful loan defaulters.
If warranted they can initiate criminal proceedings including filing of FIR, a Finance Ministry official said.
The legal process, wherever warranted, against the borrowers or guarantors and foreclosure of recovery of dues should be initiated expeditiously, a senior public sector bank official said.
Banks on case to case basis can initiate criminal proceedings against wilful defaulters, the official added.
Wherever possible, the banks can adopt a proactive approach for a change of management of the wilfully defaulting borrower unit, he added.
Banks are expected to take expeditious and effective steps for removal of the concerned person from its board.
Last month, Financial Services Secretary Rajiv Takru had said: "People who fall into the category of wilful defaulters, I think better start getting used to the idea that you are likely to lose control and management of your company if you are going to manage it badly.
"Because it is much more than your equity which is at stake, it is the public money which is at stake,” he had said.
"Banks must ask the company to change the management as the company is much more important than the fellow running it," he had said.
Gross non-performing assets of public sector banks rose to Rs 1.76 lakh crore at the end of June quarter from Rs 1.55 lakh crore (Rs 1.55 trillion) at March 31, 2013.
The ratio of gross NPA to gross advances for commercial banks rose from 2.36 per cent in March 2011 to 3.92 per cent in June 2013.
While PSU banks accounted for the disproportionate share in this increase in NPAs, the new private sector banks managed to lower their NPA ratio.