17 June 2024

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Ordinance approved empowering RBI to deal with non-performing assets in banking sector


The Union Cabinet has approved an ordinance for amending Banking Regulation Act to speed up recovery of bad loans. The ordinance has been sent to President for assent. With this amendment, RBI would get power to take action against loan defaulters and defaulting companies under the bankruptcy code. Multiple oversight committee would be constituted by RBI after the amendment. The amendments will likely to follow so that banks seeking resolution of bad debts are ring-fenced from any regulatory backlash. It is said that, these amendments in Banking Regulation Act are aimed at curbing stressed assets in banking sector.

After the approval of ordinance, The Reserve Bank shall have the power to speed up the NPA resolution process. It will help in resolving NPAs faster as the bankruptcy code provides for a time-bound winding up of companies and recovery of secured loans. It is also learnt that Reserve Bank and the central government have already made ready a list of 50 top loan defaulters who are sitting on the top of pile of NPAs against whom action can be initiated. The Companies which have diverted loans taken for specific purposes are expected to be first brought under the said scheme.

Non Performing Assets (NPA’s) are referred as assets of banks which don’t perform. According to RBI, terms loans on which interest or instalment of principal remains overdue for a period of more than 90 days from end of a particular quarter are termed as Non-performing Asset. Both the public sector and private sector banks are suffering from chronic issue of non -performing assets which has now turned into some lakh crore of pile up of bad debts.

The Banks are under pressure to perform in wake of huge pile up of NPAs and strong and urgent steps are needed to correct the policy relating to NPAs so that the banking sector can come out clean and clear. The said amendments, if applied can give boost to banks to perform better under the lens of RBI.

Tags : Ordinance Approval NPA

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