The Reserve Bank of India (RBI) on Monday outlined the action plan to implement banking ordinance to deal with bad loans. The RBI said it sought information from banks on the current status of largely stressed assets. RBI to reconstitute and expand oversight committee to deal with increasing bad loan cases. In a press release, the Central Bank on Monday outlined the steps that have been taken after the institution of the Banking Regulation (Amendment) Ordinance, 2017. These amendments (BR Act 1949) which had been introduced through the ordinance issued by the Centre to empower the Reserve Bank of India so that “it could issue directions to banking companies in the country to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC).” This also gives the RBI, the power to issue directions to banks, in matters of stressed assets and also for the specification of authorities or committees with such members as the bank might also be appointing.
The statement says that right after passing the ordinance, the RBI had issued a directive to bring the below-mentioned changes to the existing rules and regulations in the concerned matter. Here they are:
1) A clarification was made that a corrective plan could involve the inclusion of flexible restructuring, SDR and S4A.
2) The consent required for approval of a proposal was changed to 60% by value instead of 75%, keeping in view to facilitate decision making in the JLF. This shall be done while keeping the approval by number at 50%.
3) The banks who were in minority on the JLF approved proposal will have to either exit by complying with the substitution rules provided in the proposal within the given period of time or work in accordance with the JLF’s decision.
4) The participating banks have been mandated to implement the decision of JLF without any additional conditionality.
5) The Boards of said banks have been advised to give enough power to their executives for the implementation of the decisions made by the JLF without further reference to them.
The press release also stated that the banks had been duly informed that non-adherence to said regulations would be inviting enforcement actions. The Oversight Committee has been constituted by the IBA, after consultation with the Reserve Bank and currently has 2 members. According to the press release, the RBI has taken the decision for the reconstitution of the Oversight Committee under the RBI and to enlarge it so that it can have more branches that could deal with a number of cases, that it has been referred to. While the 2 current members will continue at their positions in the newly reconstituted OC, other names can be expected to be announced soon. The RBI said that it was also currently developing a framework for the facilitation of an objective and consistent decision-making process with respect to the cases that might be determined by reference to resolution under the IBC. According to the release, the RBI has asked for information about the current status of the huge stressed assets from the banks and would be constituting a committee of independent board members for advice on the matter.
The statement also indicated that the “The current guidelines on restructuring are under examination for such modifications as may be necessary to resolve the largely stressed assets in the banking system in a value optimising manner. The Reserve Bank envisages an important role for the credit rating agencies in the scheme of things and, with a view to preventing rating-shopping or any conflict of interest, is exploring the feasibility of rating assignments being determined by the Reserve Bank itself and paid for from a fund to be created out of contribution from the banks and the Reserve Bank”. The central bank also noted that it would require coordination with and cooperation from various stakeholders, such as banks, ARCs, rating agencies, IBBI and PE firms, for the proper exercise of enhanced empowerment.