In an ordinance approved by Cabinet that will empower central bank to amend the Banking Regulation law and which will give more power to intervene on behalf of banks while deciding on non-performing assets (NPAs).
There will also be fresh guidelines for the public auction of assets by public sector banks.
There will also be fresh guidelines for the public auction of assets by public sector banks.
Currently, public sector banks (PSBs) are saddled with NPAs or bad loans to the tune of a staggering Rs 6 lakh crore.
Finance Minister Arun Jaitley on Wednesday said that the Cabinet has taken some important decisions with respect to the banking sector which have been referred to the President for assent.
The framework also recommends setting up RBI oversight committees to monitor progress on the top 35-40 NPAs of all banks. These constitute 60 per cent of all NPAs by value. The committees may be allowed to oversee joint lenders’ forums (JLFs) dealing with individual cases. Currently, there is no enabling provision that allows the RBI to act on behalf of PSBs for resolving bad loans.
“The Insolvency and Bankruptcy Board and the National Companies Law Tribunal will be involved in the process as well,” said an official. “If bankers decide that a debt-laden entity needs to go under, that entity will undergo bankruptcy proceedings,” the official added. “The NCLT will be strengthened with additional manpower now that we expect many companies whose balance sheets have turned toxic and are beyond revival to undergo proceedings,” the official said.
Meanwhile, Finance Secretary Ashok Lavasa told reporters on Thursday that the NPA framework was drafted and approved by the Cabinet after discussions with all stakeholders, including RBI, banks and the companies affected.
“Certainly we feel that these changes will make the system more effective in handling the bad loans and gradually with the professionalism that exists in our banking system and with the participation of the promoters themselves and the companies, we should be able to reach resolution in many of the cases,” Lavasa said.
The framework also envisages amendments to the Prevention of Corruption Act to exempt commercial decisions by PSBs from scrutiny by investigating agencies. Both the amendments are likely in the monsoon session of Parliament.
The government has asked banks to provide data on their top NPA accounts. It has also sought more information from consortium leaders.
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