Stressed Assets 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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RBI introduces Scheme for Sustainable Structuring of Stressed Assets

The Reserve Bank of India (RBI) has issued guidelines called Scheme for Sustainable Structuring of Stressed Assets (S4A).

The main aim of these guidelines is to (i) Strengthen the lenders’ ability to deal with stressed assets and (ii) Put real assets back on track of entities facing genuine difficulties by providing an avenue for reworking financial structure.

Key Facts

  • The RBI has formulated the S4A as an optional framework for the resolution of large stressed accounts.
  • The S4A envisages determination of sustainable debt level of a stressed borrower and bifurcate outstanding debt into sustainable debt and equity/quasi-equity instruments.
  • The sustainable debt and equity/quasi-equity instruments are expected to provide upside to the lenders when the borrower turns around.
  • The resolution plan will be prepared by credible professional agencies in order to make sure that entire exercise is carried out in a prudent and transparent manner.
  • Besides, an Overseeing Committee comprising of eminent experts will be set up by the Indian Banks Association (IBA) in consultation with the RBI.
  • The committee will independently review the processes involved in preparation of the resolution plan under the S4A.

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