After the government decided to give wide-ranging powers to Reserve Bank of India on Friday to deal with bad loans, Finance Minister Arun Jaitley while addressing the media said that ordinance has been issued to further empower RBI. He added that the government has brought about substantial changes in Sarfaesi and DRT Act and even RBI has come up with different schemes to deal with stressed assets. He said high levels of NPAs hinder the capacity of banks and they need to be in a robust position to support growth.
An ordinance was passed which amends Section 35A of the Banking Regulation Act 1949 and will have to be placed in Parliament for approval in the upcoming monsoon session. It has inserted Section 35AA and Section 35 AB in the Act. The Finance Minister said that these sections have been added to Banking resolution act via ordinance. After the changes are implemented, RBI will be able to issue directions to banks for resolution of stressed assets. Jaitley said that sale of assets, closure of non-profitable branches, reduction of overhead and biz turnaround initiatives are part of amendments.
It will also be able to form committees to advise banks on stressed assets. According to the news agency PTI, Non-performing assets (NPAs) or bad loans of public sector banks (PSBs) have reached “unacceptably high levels” of over Rs 6 lakh crore, the bulk of which are in sectors such as power, steel, road infrastructure and textiles. The ordinance to amend the Banking Regulation Act was promulgated by President Pranab Mukherjee on Thursday night.
Arun Jaitley had in March said that the government would consider setting up multiple oversight committees under the RBI to examine the cases of NPAs referred by banks. “The RBI has made an Oversight Committee look into the process of cases referred to it by the different banks,” he had said. The Ordinance will also ensure effective use of IBC 2016 for resolution of stressed assets and give a big boost to the government’s efforts to cut down NPAs in the banking sector.