The Banking Regulation (Amendment) Ordinance 2017, which was promulgated today by President Pranab Mukherjee, will authorise the Reserve Bank of India (RBI) to issue directions to banks to initiate insolvency resolution process in the case of a loan default. With the promulgation of this ordinance, RBI has been equipped with powers to specify one or more authorities to advise banks for dealing with the problem of non-performing assets (NPAs), which amounted to about Rs 9.64 trillion as of 31 December 2016.
The ordinance also empowers the central bank to issue directions with regard to stressed assets. The central bank can now issue directions to any banking firm to initiate insolvency proceedings in the case of a default under the provisions of the Insolvency and Bankruptcy Code, 2016. With this new policy in place, RBI will be have required tools at its disposal to tackle the growing number of delinquent loan cases.
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Earlier, the Union Cabinet chaired by Prime Minister Narendra Modi had cleared a holistic package for resolution of NPAs, in the form of an ordinance to give increased powers to the Reserve Bank of India (RBI) to deal with NPAs more effectively. The approved resolution package had proposed to amend the Banking Regulation Act to put in place a scheme to resolve stressed assets in the banking system.
“The cabinet has approved a major decision related to the banking sector, which has been sent to the President,” Finance Minister Arun Jaitley had said after the meeting of the Cabinet on Wednesday evening. However, at that time Jaitley had 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 had said.