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Banking Regulation (Amendment) Bill

Banking Regulation (Amendment) Bill
Highlights

The Monsoon Session of the Lok Sabha was adjourned sine die on Friday after 19 sittings that saw the passage of 14 legislations, including the Banking...

The Monsoon Session of the Lok Sabha was adjourned sine die on Friday after 19 sittings that saw the passage of 14 legislations, including the Banking (Amendment) Bill. On August 10, the Rajya Sabha had passed the Bill. The Bill replaces the Banking Regulation (Amendment) Ordinance, that was passed in May 2017, after the Budget session of the Parliament.

The Banking Regulation (Amendment) Bill, 2017, seeks to amend the Banking Regulation Act, 1949 to insert provisions for handling cases related to stressed assets. Stressed assets are loans where the borrower has defaulted in repayment or where the loan has been restructured (such as by changing the repayment schedule). It will replace the Banking Regulation (Amendment) Ordinance, 2017.

The central government may authorise the RBI to issue directions to banks for initiating proceedings in case of a default in loan repayment. These proceedings would be under the Insolvency and Bankruptcy Code, 2016. The RBI may specify authorities or committees to advise banks on resolution of stressed assets. The members on such committees will be appointed or approved by the RBI.

The Bill inserts a provision to state that it will also be applicable to the State Bank of India, its subsidiaries, and Regional Rural Banks. Currently, the RBI may issue directions to banks on grounds such as ‘public interest’ and ‘in the interest of banking policy’. The Ordinance gives RBI additional powers to direct banks to initiate recovery proceedings under the Insolvency and Bankruptcy Code, 2016.

The question is whether the existing powers of RBI are sufficient and the Ordinance is redundant. A majority of NPAs (88%) are in public sector banks where the central government is a majority shareholder. It could be argued that the government could initiate recovery proceedings against defaulters without having to authorise the RBI to direct banks.

The Ordinance gives RBI additional powers to direct banks to initiate recovery proceedings under the Insolvency and Bankruptcy Code, 2016. The question is whether the existing powers of RBI are sufficient and the Ordinance is redundant, according to PRSI.

Giving greater powers for the RBI, the Bill inserts clauses for handling cases related to stressed assets. RBI has identified 12 corporate borrowers, involving an amount of close to Rs 1,75,000 crore NPAs. It has asked the banks to initiate for insolvency proceedings under the newly enacted Insolvency and Bankruptcy Code 2016 (IBC).

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