The Narendra Modi led Cabinet has given its nod to set up a mechanism for resolution of stressed assets (bad loans) of banks which have reached crisis proportions. The Cabinet cleared amendments to the Banking Regulation Act, to be effected through an ordinance, which is likely to be cleared by President Pranab Mukherjee on Wednesday night itself. According to Finance Minister Arun Jaitley, the details will be announced after President Pranab Mukherjee gives his approval. Sources have revealed that the Cabinet has cleared an ordinance to amend the Banking Regulation Act to resolve the non-performing assets (NPAs) crisis and that the President’s nod is likely soon.
Finance Ministry has revealed that the ordinance on NPAs will allow RBI to issue direction to banks to effectively resolve bad loans problem.
According to an Indian Express report, the gross NPAs of state owned banks alone soared as much as 56.4 per cent to Rs 614,872 crore in the 12-month period that ended December 2016. However, there was more bad news on the way as they were expected to rise over the next two quarters. This setback was likely to stem from small and medium sectors (SMEs) that have been struggling for a while now.
Without giving details, Finance Minister Arun Jaitley said the Cabinet has taken some important decisions in respect of the banking sector. “There is a convention that when some proposal is referred to the President, then details of it cannot be disclosed till it is approved. As soon as approval comes, details will be shared,” he said.
According to an FE Bureau report, Modi government is looking favourably at giving funds for recapitalisation of public-sector banks (PSBs) in excess of the budgeted Rs 10,000 crore for the current fiscal after some experts had dubbed the budgetary allocation for recapitalisation in 2017-18 as being low, considering the scale of the problem.
The Reserve Bank of India (RBI) on its part recently came up with what is being interpreted as a veiled threat to banks to shape up. It unveiled stricter rules for complying with covenants. If banks breach these limits, RBI will impose restrictions on them including capping the amount of dividend paid out by them.