Its time for time-bound NPAs resolution

Cabinet Takes 'Important Decisions&apos on Banking Sector Ordinance With President

Under this, the Indian government authorised RBI to direct banks to initiate an insolvency resolution process in the case of a default under provisions of the bankruptcy code.

Last week, the Government announced amendments to the Banking Regulation Act granting more powers to the Reserve Bank of India (RBI) thereby putting the ball in the central bank's court to help resolve the mounting bad loans.

The Cabinet had on Tuesday had recommended the Ordinance empowering the RBI to instruct banks to act against top 20-25 loan defaulters as part of a series of steps aimed at helping lenders get bad debt off their books.

The ordinance further allows RBI to issue directions to banking companies for resolution of stressed assets, from time to time. The new law may also thus empower banks to force waiving corporate loan defaulters to forego ownership and voting rights in their companies.

Gross NPA pf PSBs almost doubled to Rs 5.02 lakh crore at the end of March 2016, up from Rs 2.67 lakh crore at the end of March 2015. It is done to preserve the economic value of stressed assets.

He explained that the Reserve Bank is required to be empowered in relation to specific stressed assets.

In a bid to tackle the bad loans problem which has clogged the banking system, the Union Government on Friday notified the Banking Regulations Amendment Ordinance. "They would relate to immediate cash relief initiatives such as sale of assets, closure of non-profitable branches, reduction of overheads, business turnaround initiatives such as strengthening credit appraisal processes under active NPA management and several others".

There has been growing dissent among bankers that their commercial decisions against stressed assets and account have been questioned by authorities, especially after the CBI crackdown on IDBI for loans to the now defunct Kingfisher Airlines. "Present status quo can not continue".

The ordinance to amend the Banking Regulation Act will give a big boost to the government's efforts to cut down on non-performing assets in the banking sector. "Whenever North Block has without power interfered in the banking system, it hasn't done very good", he said. The success of this latest salvo against bad loans will depend on the fine print on how the ultimate decision - whether to take a haircut on a loan and restructure it or invoke bankruptcy clauses - is arrived at. This is an ongoing process in which there are resolutions.

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