THE CABINET Wednesday approved promulgation of an ordinance to amend the Banking Regulation Act to give the Reserve Bank of India more powers to deal with non-performing assets (NPAs) in the sector. Sources said the amendments in existing laws will empower the RBI to take action against loan defaulters and defaulting companies under the bankruptcy code. The ordinance has been sent to President Pranab Mukherjee for assent. The amendments also enable the RBI to set up multiple oversight committees to deal with NPAs. Changes have been built into the law to ensure that bankers who opt for resolution of bad debts and take haircuts on loan values are ring-fenced from any regulatory backlash, sources said.
The move is expected to speed up the NPA resolution process, as the bankruptcy code provides for a time-bound winding up of companies and recovery of secured loans. “We expect the entire process of banks selling bad loans and effecting recoveries to gather momentum,” said a top finance ministry official. The government and the RBI have already prepared a list of top 50 loan defaulters against whom action can be initiated. The Indian Express had reported in February 2016 that Rs 1.14 lakh crore of bad loans had been written off by state-owned banks between 2013 and 2015.
On Wednesday, following the Cabinet meeting, Union Finance Minister Arun Jaitley said that a recommendation related to the NPA issue had been sent to the President for approval. He did not provide any further details. “Banking sector ko lekar kuch pramukh nirnay mantri parishad mein hua hai (There has been important decisions taken regarding the banking sector at the Cabinet meeting),” Jaitley said. “Lekin ek maryada hai ki jab manya rashtrapatiji ko koi mantri parishad sifarish karta hai, uss proposal ki details hum tab tak nahi dete jab tak Rashtrapati Bhavan se aur manya rashtrapatiji ki swikriti na aa jaye (But as a mark of respect, we do not divulge details of the same until we get the President’s approval),” Jaitley said.
Sources said officials in the department of financial services, which oversees the banking sector, were coordinating with the President’s office till late in the night to ensure timely approval for the ordinance. When contacted by The Indian Express, banking secretary Anjuly Chib Duggal refused to provide any details of the ordinance. Another finance ministry official said the ordinance is expected to be cleared by the President soon — may be “as early as tomorrow”. Finance ministry officials said the legislative change is one among a series of measures being planned to tackle the bad loan issue. The RBI is also expected to take up sector-specific measures to deal with NPAs.
Sources said corporate borrowers who have diverted loans taken for specific purposes will be the first to come under the regulator’s scanner. Officials also ruled out any immediate plans to set up a state-owned bad bank that will take over the NPAs of public sector banks. NPAs have been rising in the banking sector despite the government taking a series of measures in recent months. Scheduled commercial banks’ total stressed assets, which comprise gross NPAs as well as restructured standard advances, stood at Rs 9.64 lakh crore as on December 31, 2016, as per finance ministry data. Bad debts have risen sharply in state-owned banks while private banks have registered a relatively lower spike in NPAs in the fiscal year.
Public sector banks’ NPAs surged by over Rs 1 lakh crore during the April-December period of 2016-17. PSU banks’ gross NPAs in the first nine months of the current fiscal rose to Rs 6.06 lakh crore by December 31, 2016, from Rs 5.02 lakh crore during 2015-16. For private sector banks, gross NPAs grew to Rs 70,321 crore by December 31, 2016, from Rs 48,380 crore as on March 31, 2016.