Amid high levels of stressed assets in the Indian banking system, the Reserve Bank of India (RBI) may reportedly announce within a fortnight the guidelines to operationalise non-performing assets (NPAs) ordinance so as to expedite the recovery of bad loans which amounted to about Rs 9.64 trillion as of 31 December 2016. These guidelines will form another move in a series of steps taken by the central bank to tackle the menace of rising NPAs.
The framework would include the creation of a separate cell to identify issues pertaining to non-performing assets (NPAs) or bad loans and have a clause providing definitive time-frame for the resolution process, PTI reported quoting unidentified sources. The time-frame could range from 60-90 days, the sources added.
RBI is also considering setting up a special cell which will identify cases for revival or takeover by another company. Besides, it can suggest to a bank to refer a particular case for insolvency and bankruptcy, the unidentified sources further said. RBI has identified about 50 cases for NPA resolution after it was empowered by the government to ask banks to initiate insolvency proceedings, the unidentified sources added.
“The cases which have already been examined by the joint lenders’ forum (JLF) but have not reached logical conclusion after that… such cases would be taken up by the RBI and the regulator can direct banks for resolution,” a Finance Ministry official said.
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Earlier this month, the Union Cabinet cleared a NPA resolution package, which included an ordinance to give increased powers to RBI to deal with NPAs more effectively. The resolution package amended the Banking Regulation Act to put in place a scheme to resolve stressed assets in the banking system. The ordinance allows RBI to deal with bad loans on a case-to-case basis as opposed to following a set of broad guidelines and same rules for all NPAs.
The ordinance also empowers the central bank to issue directions with regard to stressed assets. The central bank can now issue directions to any banking firm to initiate insolvency proceedings in the case of a default under the provisions of the Insolvency and Bankruptcy Code, 2016. With this new policy in place, RBI will have the required tools at its disposal to tackle the growing number of delinquent loan cases.
Earlier, RBI, under the leadership of former governor Raghuram Rajan, initiated an Asset Quality Review (AQR) and asked all banks to complete this AQR process by March 2017. This AQR, which was implemented from Q4 of FY16, forced the banks to report the actual NPAs that were so far hidden in their balance sheets under some technical adjustment or the other.
The bad loan of public sector banks jumped by over Rs 1 lakh crore during the April-December period of 2016-17. The gross NPAs of PSU banks’ in the first nine months of the current fiscal increased 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 rose to Rs 70,321 crore by December 31, 2016, from Rs 48,380 crore as on March 31, 2016.