NPAs Current Affairs

Lok Sabha passes Banking Regulation (Amendment) Bill, 2017

The Lok Sabha has passed the Banking Regulation (Amendment) Bill, 2017 by voice vote. It 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.

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).

Need for Amendment

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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Gross NPAs of PSBs touch over 6 lakh crores in July-September 2016

The Union Government has announced that the gross non-performing assets (NPAs) of the Public sector banks (PSBs) have touched around 66 lakh 40 thousand in the three months period from July to September 2016.

As on September 30, 2016 gross NPAs of the PSBs in the country rose to  Rs. 6,30,323 crore as against Rs. 5,50,346 crore by end of June 2016. It shows increase of Rs. 79,977 crore NPAs on quarter on quarter basis during this period.

Steps taken by Government

The incidence of NPAs is high in sectors like infrastructure, power, road textiles, steel etc. So, the Union Government has taken sector specific measures to tackle the menace of NPAs. These measures aim at improving resolution or recovery of bank loans.  They are enactment of Insolvency and Bankruptcy code, 2016 followed by amendment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) and Recovery of Debt due to Banks and Financial Institutions (RDDBFI), Act. In addition, six new Debt Recovery Tribunals (DRTs) have been established.

What are Non-Performing Assets (NPA’s)?

  • NPAs are loans made by a bank or finance company on which repayments or interest payments are not being made on time.
  • Thus, NPAs are any asset of a bank which is not producing any income and are also called non-performing loans.
  • The loan is considered to be a NPA once the borrower fails to make interest or principal payments for 90 days.
  • In case of Agriculture/Farm Loans, the NPA varies for of Short duration crop loan (interest not paid for 2 crop seasons), Long Duration Crops (interest not paid for 1 Crop season).

What are negative effects of NPAs?

Large number of NPAs affects the profitability & liquidity of the banks. It adversely affects the value of bank in terms of market credit and widens assets and liability mismatch. It results in inflating the cost of capital for economic activities and banks may charge higher interest rates on some products to compensate NPAs.

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