President Pranab Mukherjee on Thursday night reportedly signed the ordinance which gives greater power to Reserve Bank of India (RBI) to tackle bad loans and non-performing assets. The Cabinet on Wednesday okayed promulgation of an ordinance to amend the Section 35 A Banking Regulation Act for resolution of the non-performing asset (NPA) crisis.
On Thursday, Finance Secretary Ashok Lavasa said the amendments to the Banking Regulation Act would help in effectively resolving the bad loans problem. However, he added that it is not possible to put down a number on how this (NPAs) will go down, but certainly, these changes will make the system more effective in handling the bad loans.
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In comparison to the private sector, the bad loans number in public sector banks (PSBs) have risen sharply. 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.
We take a look at changes and how it will help tackle bad loans:
-Extant bad resolution schemes to be tweaked to give lenders more flexibility, but shorter than any let-up on RBI’s provisioning needs.
-Changes to Prevention of Corruption Act to give a higher, reasonable level of immunity to bank managements in taking expedient decisions.
-Amendments to Banking Regulation Act to complement Insolvency and Bankruptcy code
-Amendments to BRA, PCA could be introduced as early as next session of Parliament for approval
– Reports quoting sources said that the amendment to the Act may add a provision to make wilful default a criminal offence
Section 35 A of the Banking Regulations Act deals with the power of the RBI to give directions to banks. The section also makes it clear that the RBI may, on representation made to it or on its own motion, modify or cancel any direction to banks and may impose such conditions on them as it thinks fit.