Banking Regulation (Amendment) Bill, 2017 will replace the Banking Regulation (Amendment) Ordinance, 2017.
The bill seeks to amend the Banking Regulation Act, 1949 to insert provisions for handling cases related to stressed assets or non-performing assets (NPAs) of banks. Stressed assets (NPAs) are loans defaulted by borrower in repayment or the loan which has been restructured by changing the repayment schedule.
Why was the ordinance passed?
- To address high levels of stress faced by the banking sector at the time.
- Previously in the month of June, The RBI had identified 12 ‘defaulters’ who account for around 25% of India’s non-performing assets (NPA) and informed banks to take up insolvency proceedings against them.
- Steel, Infrastructure, Power and Textiles are the sectors with the most NPAs.
- Public sector banks were hit the most as large modern and foundation programs were bolstered by them with the expectation that there would be further extension.
Key Features of the Bill
- Initiating insolvency proceedings: It will enable the Central government to authorize the Reserve Bank of India (RBI) to direct banking companies to resolve specific stressed assets by initiating insolvency resolution process. These proceedings will be under the Insolvency and Bankruptcy Code, 2016.
- Issuing directions on stressed assets: It empowers RBI to issue directions to banks for resolution of stressed assets from time to time.
- Committee to advise banks: It enables RBI to specify committees or authorities to advise banks on resolution of stressed assets. RBI will appoint or approve members on such committees.
- Applicability to State Bank of India (SBI): It inserts provision to make above provisions applicable to the SBI and its subsidiaries and also Regional Rural Banks (RRBs).
Why this amendment was needed?
Non-performing assets (NPAs) or bad loans of banks have risen to over Rs. 9 lakh crore resulting in choking the banking system. So it had become necessary for the RBI to intervene in order to take urgent measures for their speedy resolution.
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