The Narendra Modi government has started process to check ever increasing bad loans in the banking sector. The cabinet chaired by the Prime Minister has approved a proposal to amend Section 35 A of the Banking Regulation Act through the ordinance route, according to The Indian Express reports. According to report, amendment will empower the Reserve Bank of India (RBI) to issue direction to banks to recover non-performing assets (NPAs) from loan defaulters. It also empower the central bank to issue direction to the banks in public interest and depositors, the report says.
Union Finance Minister said Arun Jaitley had said the government has taken some crucial 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 was quoted as saying by PTI.
It has been learned that Public Sector Banks (PSBs) are saddled with non-performing assets or bad loans to the tune of a staggering Rs 6 lakh crore. Bad loans rose by over Rs 1 lakh crore in the first nine months of last fiscal to Rs 6.07 lakh crore by December 31, 2016. Gross NPA of PSBs stood at Rs 5.02 lakh crore at the end of March 2016, up from Rs 2.67 lakh crore at the end of March 2015, the report says.
The amended law will also empower RBI to set up oversight panels that will shield bankers from later action by probe agencies looking into loan recasts. Banks have been reluctant to resolve NPAs through settlement schemes or sell bad loans to asset reconstruction companies for fear of being hauled up by investigation agencies. Once the law is amended, RBI will be able to give specific solutions for specific cases and also, if required, look at providing relaxation in terms of current guidelines, said a senior government official aware of the deliberations.
As per the Indian Express report, 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.