‘RBI push to resolve Rs. 8 lakh cr. bad loans’:

‘RBI push to resolve Rs. 8 lakh cr. bad loans’:

(NPA of Rs 8 lakh crore to end by March 2019)

Context: Industry body Assocham said that the Banking Regulation (Amendment ) Ordinance has empowered the Reserve Bank of India (RBI) to take up “ bad loans” worth about Rs 8 lakh crore for resolution by March 2019.

Introduction:

• According to Assocham the move has the potential to bring down the non-performing asset (NPA) levels and “significantly improve” the financial health of banks.
• NPAs are a big drain on the financial health of banks especially public sector banks (PSBs).
• The government gave wide-ranging legislative powers to the Reserve Bank of India to issue directions to lenders to initiate insolvency proceedings for the recovery of bad loans that have reached unacceptably high level.
• After the notification of the ordinance amending the Banking Resolution Act 1949, the RBI eased the decision-making process in the Joint Lender’s Forum (JLF) and Corrective Action Plan (CAP) under the “Framework for Revitalising Distressed Assets in the Economy.’

Highlights:

• The resolution of NPA would be enabled by a combination of several factors including a turnaround in the economic cycle and some resolute steps by the government and RBI to fix the issue, the report stressed.
• Assocham study titled ‘NPAs Resolution: Light at the end of tunnel by March 2019’ said “So, it should be safe to assume that the non-performing assets (NPAs) mess would largely be resolved by the first quarter of financial year 2019-20,”
• Although entire NPAs could be put on the altar of Insolvency and Bankruptcy Code (IBC) resolution mechanism, it has to be seen how much and how fast these bad loans actually go out from the balance sheets of banks, which at this point of time seem much stressed, the report added.