These powers will be given to RBI under new Banking Regulation (Amendment) Bill 2017

Key Highlights: 

• Jaitley introduces Banking Regulation (Amendment) Bill 2017 bill in Lok Sabha
• Banking Regulation (Amendment) Bill 2017 to amend  Banking Regulation Act, 1949
• Bank's gross NPAs stood at Rs 7.65 lakh crore by end of FY17

Finance Minister Arun Jaitley on Monday introduced the Banking Regulation (Amendment) Bill 2017 in the Lok Sabha.

Among many bills also involved Banking Regulation (Amendment) Bill 2017 that was said to be for introduction, consideration and passing process in the current  monsoon session of the Parliament which began on July 16, 2017.

This new bill has been rooted to amend Banking Regulation Act, 1949 and replace the Banking Regulation (Amendment) Ordinance, 2017 which was announced in the month of May this year.

On May 05, 2017, the Ministry of Finance promulgated the Banking Regulation (Amendment) Ordinance, 2017 inserting two new Sections (viz. 35AA and 35AB) after Section 35A of the Banking Regulation Act, 1949 – which provides the Reserve Bank of India (RBI) more power in tackling the banking sectors non-performing assets (NPAs) crisis.

A PTI report on Monday said, "Jaitley introduced the Bill amid protests in the House by opposition members protesting over the alleged incidents of lynching by cow vigilantes in different parts of the country."

It further stated that just before the bill was introduced, Trinamool Congress member Sougata Ray said he was opposed to the banking regulation ordinance and said it was a "desperate step by a desperate government".

Under this bill, RBI can direct  banking companies to resolve specific stressed assets by initiating insolvency resolution process, where required. 

RBI will empowered to issue other directions for resolution, and appoint or approve for appointment, authorities or committees to advise banking companies for stressed asset resolution. 

RBI may from time to time issue directions to banks for resolving stressed assets.

The Code provides for a time-bound process to resolve defaults by either (i) restructuring a loan (such as changing the repayment schedule), or (ii) liquidating the defaulter’s assets.

Currently, the RBI may issue directions to banks on grounds such as ‘public interest’ and ‘in the interest of banking policy’. The Ordinance gives RBI additional powers to direct banks to initiate recovery proceedings under the Insolvency and Bankruptcy Code, 2016, according to PRS Legislative Research.

On June 13, 2017, RBI through its Internal Advisory Committee (IAC)  recognized 12 accounts for resolution under Insolvency & Bankruptcy code (IBC).

For accounts with more than Rs 5000 crore – where 60% or more exposure was already NPA by banks as on FY16 – immediate reference to resolution through IBC will be made. Thus a total of 12 accounts constituting of 25% of gross NPAs of banks will qualify for insolvency. 

Care Ratings in its report said, “PSU Banks have been reluctant in taking decision with respect to NPA resolution due to fear of enquirers at a later stage. Formation of committees by RBI to advise banks on resolution of stressed assets would expedite the decision process in PSU Banks and help in resolution of NPAs.”

By end of FY17, banks had gross non-performing assets (NPAs) of 9.5% of gross advances valuing up to Rs  7.65 lakh crore. 

GNPAs of a total 21 PSBs stood at Rs 6.19 lakh crore, rising by 19.96% compared to Rs 5.16 lakh crore in the similar period of the previous year.

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