RBI TO CRACK DOWN ON BANK NPAs - QUICK VIEWS
Essential for All Upcoming Bank Exams
- The Central Government on 5th May, 2017 notified changes to the Banking Regulation Act, giving the Reserve Bank of India (RBI) board powers to deal with specified bad loan cases as it tries to speed up resolution of Rs. 9.64 lakh crore of stressed assets clogging the Indian Banking System.
- Experts admonished that this was just the first step in the process of putting the load on the central bank to reduce the mountain of bad loans. The move could pose potential rivalry-of-interest issues for the regulator.
- The Banking Regulation (Amendment) Ordinance 2017, which was signed by President Pranab Mukherjee on 4th May, 2017 introduces two new sections in the Banking Regulation Act of 1949.
- The First Section gives the Reserve Bank of India the right to form oversight committees packed with members handpicked by the regulator to “advise banking companies on resolution of stressed assets”.
- The Second Section empowers the Central Government to order the Reserve Bank of India to issue directions to any banking company or banking companies to initiate an insolvency resolution process a borrower who defaults on repayments.
- The insolvency resolution process will be initiated under the provisions of the Insolvency and Bankruptcy Code that was passed by Parliament in 2016.
- Under the bankruptcy code, a default means the non-payment of debt “when whole or any part of installment of the amount of debt has become due and payable and is not repaid by the corporate debtor, as the case may be”.
- The Reserve Bank of India on 5th May, 2017 came out with a notification to fast-track the process to resolve debtor defaults.
- The RBI lowered the voting thresholds on the joint lenders forum – a consortium of banks with exposures to an errant borrower – for the adoption of a Corrective Action Plan (CAP) designed to arrive at an early and feasible solution to preserve the economic value of the underlying assets as well as the lender’s loans.
- “It has been decided that henceforth the decisions agreed upon by a minimum of 60% of creditors by value and 50% of creditors by number in the JLF would be considered as the basis for deciding the CAP”. Earlier, the voting thresholds were a minimum of 75% by value and 60% by number in the JLF.