Modi government’s ordinance on non-performing asset (NPA) resolution which has been approved by President Pranab Mukherjee is expected to provide a shot in the arm to the banking sector which is under stress due to a buildup of NPAs, however, the ordinance in itself might not be enough to rid the banking sector of the mess caused due to stressed assets.
“Need more action to create infrastructure for speeding up NPA cases,” said Harun Rashid Khan, former Deputy Governor RBI, in an interview with ET Now. “Insolvency code could be one measure to resolve large Non-Performing Loans. Insolvency structure in nascent stage currently. Need for more focused & dedicated National Company Law Tribunals to look at insolvency cases,” khan further said in the interview.
On Wednesday, the Union Cabinet had cleared a non-performing asset (NPA) resolution package, which reportedly includes an ordinance to give increased powers to the Reserve Bank of India (RBI) to deal with NPAs more effectively.
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The resolution package also proposes to amend the Banking Regulation Act to put in place a scheme to resolve stressed assets in the banking system, which amounted to about Rs 9.64 trillion as of 31 December 2016. The proposal to amend the Act, in the form of an ordinance, was sent to President Pranab Mukherjee for his consent.
“The cabinet has approved a major decision related to the banking sector, which has been sent to the President,” Finance Minister Arun Jaitley said after the meeting of the Cabinet chaired by Prime Minister Narendra Modi on Wednesday evening. However, Jaitley declined to elaborate on the contents of the plan. “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.
The ordinance will reportedly allow the Reserve Bank of India (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 non-performing assets (NPAs).