Amended Banking Regulation Bill gets elders’ nod:

Amended Banking Regulation Bill gets elders’ nod:

Context:

Parliament passes bill empowering RBI to recover NPAs

Introduction:

The Rajya Sabha on Thursday passed the Banking Regulation (Amendment) Bill, which empowers the Reserve Bank of India to issue instruction to the banks to act against major defaulters.

Background:

• The bill, earlier passed by the Lok Sabha, will replace the Banking Regulation (Amendment) Ordinance, 2017.
•  It empowers the Reserve Bank of India to issue instructions to PSBs to act against major defaulters.
• The measure allows the RBI to initiate insolvency resolution process on specific stressed assets.
• Finance Minister Arun Jaitley said there was nothing wrong in banks giving out loans and trying to recover them. It was only on the strength of the banking finance that businesses expanded, jobs were created and the economy moved on.

Key points:

• The RBI would also be empowered to issue other directions for resolution, appoint or approve for appointment, authorities or committees to advise the banking companies for stressed asset resolution.
• Last month, the RBI identified 12 large loan defaulters who account for 25 per cent of the total NPAs, or bad loans, in the banking sector.

Non-performing assets(NPA):

•  NPAs stood at Rs 6.41 lakh crore by March this year. They were growing because of accumulated interest. Along with the stressed assets, they amounted to over Rs 8 lakh crore.
•   NPAs of banks have risen to over Rs 9 lakh crore and the RBI is now being given power to refer these cases to the Insolvency and Bankruptcy Board.

Insolvency law

•  The law provides for a window of 180 days for debtors to settle the matter or face eviction and subsequent takeover of management by debt reconstruction companies, things had started improving
•  Under the bill, the central government may authorise the RBI to issue directions to any banking company to initiate insolvency in respect of a default under the provision of the Insolvency and Bankruptcy Code.
•  It also has provisions empowering the RBI to issue directions to banks for resolution of stressed assets.
• The sectors most responsible for the accumulated NPAs are steel, power, textiles and infrastructure

Need for legislation:

•  The capacity of banks to lend money to small creditors is being impacted, the growth is impacted.
• Public sector banks were hit the most as big industrial and infrastructure programme were supported by them in the hope that there would be further expansion
•  It also performed other functions like public debt management.
•  Earlier rules of debt recovery were time consuming. The new parallel mechanism was more effective.