Cabinet gives RBI more teeth to tackle bad loans in banks

The amendment in the banking law will enable the setting up of a committee to oversee companies that have been the biggest defaulters of loans.

The Union Cabinet on Wednesday approved promulgation of an ordinance to amend the Banking Regulation Act to speed up recovery of bad loans.

Of the total stressed assets in the banking system, public sector banks are saddled with non-performing assets of Rs 6 lakh crore. The rest of the bad loans have been restructured by lenders. (AP File Photo)

The move comes after clarion calls from lenders who have been jostling with stressed assets mounting to about Rs 10 lakh crore, or close to 7% of India’s GDP, as of December-end.

Of the total stressed assets in the banking system, public sector banks are saddled with non-performing assets of Rs 6 lakh crore. The rest of the bad loans have been restructured by lenders.

The amendment in the banking law will enable the setting up of a committee to oversee companies that have been the biggest defaulters of loans.

Finance minister Arun Jaitley, briefing the media after the Cabinet meet chaired by Prime Minister Narendra Modi, said an important decision had been taken related to the banking sector, but details could be made public only after the President’s approval of the proposal.

“There is a convention that when some proposal is referred to the President, details of it cannot be disclosed till it is approved. As soon as approval comes, details will be shared,” he said.

The Reserve Bank of India (RBI) has provided a number of resolution tools such as corporate debt restructuring, formation of joint lenders’ forum, including rectification, restructuring and recovery, flexible structuring for long-term project loans to infrastructure and core industries (5/25 Scheme), strategic debt restructuring scheme and sustainable structuring of stressed assets (S4A) to check the menace of NPAs.

The finance ministry and the RBI are drawing up plans to deal with top defaulters.