Finance minister Arun Jaitley on Monday introduced in the Lok Sabha a Bill to replace an ordinance to authorise the Reserve Bank Of India (RBI) to direct banks to resolve specific cases of bad loans by initiating resolution process under the new insolvency law, where required.The Banking Regulation (Amendment) Bill, 2017, seeks to amend the Banking Regulation Act, 1949, and replace the Banking Regulation (Amendment) Ordinance, 2017, that was promulgated in May this year. Apart from asking banks to invoke the insolvency law, the move also empowers the RBI to issue other directions for the resolution of stressed assets, such as appointing committees to advise banks to resolve stressed asset issue. Following the Ordinance, RBI decided to refer 12 NPA accounts — including those of Essar Steel, Bhushan Steel and Electrosteel Steels— that account for 25% of the bad loans in the banking system for resolution under the Insolvency and Bankruptcy Code. Gross non-performing assets of banks reached as high as Rs 7.11 lakh crore as of April, with most concentrated in public-sector banks, according to Capitaline data.
The amendments through the earlier Ordinance had inserted two new sections to the Banking Regulation Act to add to the sweeping powers already available to the central bank to direct banks under the Section 35-A of the extant Act and obviate any question on the authority of the RBI to gives directions to banks to deal with massive stressed assets. The central bank can now give directions on even specific cases of defaults, a practice it had generally avoided earlier.Opposing the Bill, Trinamool Congress member Sougata Ray said the banking regulation ordinance was a “desperate step by a desperate government”. “It is the same RBI which had not been able to count notes (since demonetisation). Giving such powers to RBI will detract it from macro-economic to micro-economic issues and render the bank management useless,” Roy said.He asked the government to refer the bill to the Parliamentary Standing Committee. However, Jaitley said the issue will be dealt with when the matter comes up for discussion later during the monsoon session.