Finance Minister Arun Jaitley said the government has notified The Banking Regulation (Amendment) Ordinance, 2017 which was approved by President Pranab Mukherjee last night. With the promulgation of this ordinance, Reserve Bank of India (RBI) has been equipped with powers to direct banks to initiate insolvency proceedings against defaulters. Also, RBI can now designate one or more authorities to advise banks for dealing with the problem of non-performing assets (NPAs), which amounted to about Rs 9.64 lakh crore as of 31 December 2016.
Here are the key takeaways of the ordinance:
Finance Minister Arun Jaitley said that banks need to be robust in order to support growth and high levels of NPAs in banking system impede growth supporting capacity of the banks
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This Banking Regulation (Amendment) Ordinance, 2017 empowers RBI with relation to specifically stressed assets. The ordinance will authorise RBI to issue directions to banks to initiate insolvency resolution process in the case of a loan default.
Banking Regulation Act
The ordinance adds section 35AA and 35B to the Banking Regulation Act, 1949. Through section 35AA added today, the government has provided powers to RBI to issue directives to banks to initiate liquidation proceedings in cases of loan defaults. Through section 35B RBI has been provided powers to form committees to advise banks on how to deal with stressed assets.
Steps to resolve NPA
The ordinance will enable the introduction of provisions in Memorandum of Understanding (MoUs) for Public Sector Banks (PSBs) seeking capitalization. Banks will also be asked to raise immediate cash by a sale of assets of the defaulter and maintain their profitability by closing loss-making branches.
Finance Minister also said that the government is also contemplating taking some additional steps to tackle the problem of stressed assets. Jaitley said the government will give details of those steps as and when they are taken.