Concerned with huge pile-up of bad loans in the banking sector in the country, the Government on Friday said that Reserve Bank of India (RBI) has been empowered to ask banks to initiate insolvency proceedings to resolve the non-performing asset or NPA crisis.
"The banks have an unacceptably high-level of NPAs which hinders their capacity to fund economic activities. The Government has issued a general authorisation to RBI in this regard in line with the ordinance promulgated by President Pranab Mukherjee last evening," Union Finance Minister Arun Jaitley told reporters here.
Explaining how the move would expedite commercial decision makings of the banks, he said, "One of the objects is that when bankers take commercial decisions on commercial and banking considerations, they must have adequate comfort level."
The RBI has been given the powers through an ordinance that authorises it to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default under the provisions of the Insolvency and Bankruptcy Code (IBC), 2016. The ordinance, which amends Section 35A of the Banking Regulation Act 1949, will have to be placed in Parliament for approval in the upcoming monsoon session. It has inserted Section 35 AA and Section 35 AB in the Act.
"The object of this Act is that the present status quo cannot continue. And the present status quo is that not much was moving and therefore a paralysis in the name of autonomy is detrimental to the economy itself and therefore that really requires to be broken," Jaitley said.
Jailtey further said that interference of the Finance Ministry has not helped in dealing with the problem of the sector. "Whenever North Block has without power interfered in the banking system, it hasn't done very good," he added.
The ordinance has also empowered the RBI to set up sector related oversight panels that will shield bankers from later action by probe agencies looking into loan recasts. "And therefore a committee which oversees such JlF (joint lenders forum) arrangements is one step which will give them (bankers) this comfort level," Jaitley added.
He said an amendment is proposed to the prevention of corruption act which has been introduced in Parliament. The Standing Committee has submitted its report on its and will come up for consideration of both the Houses. "Some other steps also being taken, which once decided, will be communicated," he added.
Further, the Government is also planning to modify MoUs which banks sign at the time of receiving capital from the Government. This, he said, would relate to immediate cash release initiatives, like sale of assets, closure of non profitable branches, reduction of overheads, business turnaround steps, and strengthening of credit appraisal process.
leading bankers welcomed the NPA ordinance that amends the Banking Regulation Act and gives more powers to RBI to direct banks on resolution of stressed assets to speed up the recovery process.
"Amendments to the Banking Regulations Act, coming on the heels of the enactment of the Insolvency and Bankruptcy Code and amendments to the Sarfaesi and the debt recovery tribunal laws indicate Government's firm commitment to find a satisfactory solution to the NPA resolution problem," SBI chairman Arundhati Bhattacharya said.
Joining her, ICICI Bank chief executive Chanda Kochhar described the proposed law as a "big step" to resolve the bad loans pains as "in the last two years, there were very few decisions from banks in a coordinated manner as their focus was on NPA recognition and resolution was not happening."