NPAs Current Affairs

Government notifies Banking Regulation (Amendment) Act, 2017

The Union Government has notified the Banking Regulation (Amendment) Act, 2017. The Parliament had approved the Banking Regulation (Amendment) Bill, 2017 which replaced an ordinance in this regard.

It amended the Banking Regulation Act, 1949 by adding provisions for handling cases related to stressed assets or non-performing assets (NPAs) of banks.

Key Facts

The Act empowers 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 under the Insolvency and Bankruptcy Code, 2016. The RBI can specify authorities or committees to advise banks on resolution of stressed assets. The members on the committees will be appointed or approved by the RBI. The Act also make these provisions applicable to the SBI and its subsidiaries and also Regional Rural Banks (RRBs).

Background

The banking sector in India is saddled with non-performing assets (NPAs) of over Rs.8 lakh crore, of which, Rs. 6 lakh crore are with public sector banks (PSBs). The Union Government in May 2017 had promulgated an ordinance authorising the RBI to issue directions to banks to initiate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016. The RBI had identified 12 accounts each having more than Rs. 5000 crore of outstanding loans and accounting for 25% of total NPAs of banks for immediate referral for resolution under the bankruptcy law. The bulk of the NPAs are in various sectors including power, steel, road infrastructure and textiles.

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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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