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Banking Regulations Amendment Ordinance

Banking Regulations Amendment Ordinance
Highlights

President Pranab Mukherjee on Friday approved an ordinance to amend Banking Regulation Act 1949, giving more powers to the RBI to deal with bad loans...

President Pranab Mukherjee on Friday approved an ordinance to amend Banking Regulation Act 1949, giving more powers to the RBI to deal with bad loans for resolution of the bad loans crisis in PSU banks.

The three key measures proposed in the ordinance, according to Livemint are: The government may authorise the RBI to issue directions to banks to initiate insolvency proceedings against defaulters under the bankruptcy code; RBI on its own accord can issue directions to banks for resolution of stressed assets; and RBI may form committees with members it can choose to appoint to advise banks on resolution of stressed assets.

These measures, in effect, give the RBI and the central government powers to act directly against any company which has defaulted on its loans. The total stressed assets, including gross NPAs as well as restructured standard advances, stood at Rs 9.64 lakh crore as on December 31, 2016. The ordinance gives greater powers to the RBI to tackle mounting bad loans. India’s banks have been beset with non-performing assets (NPAs).

The RBI and the government had earlier asked banks to impose a strict ban on any new loans to wilful defaulters. Such borrowers are also now barred from being appointed as directors on boards of companies. In the recent months, the government and the RBI have taken various measures to address the twin balance sheet problem relating to over leveraged companies and bad loans accumulation in banks.

The government has taken sector specific measures (Infrastructure, Power, Road, Textiles, Steel etc.) where incidence of NPA is high. The Insolvency and Bankruptcy Code (IBC) has been enacted and Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) and the Recovery of Debts due to Banks and Financial Institutions (RDDBFI) Act have been amended to improve resolution / recovery of bank loans.

Six new Debt Recovery Tribunals (DRTs) have been established for improving recovery. RBI has provided a number of tools in this regard Corporate Debt Restructuring (CDR), Formation of Joint Lenders’ Forum (JLF), Flexible Structuring for long term project loans to Infrastructure and Core Industries (5/25 Scheme), Strategic Debt Restructuring Scheme (SDR) and Sustainable Structuring of Stressed Assets (S4A).

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