Union Finance Minister Arun Jaitley introduced the Banking Regulation (Amendment) Bill, 2017, in the Lok Sabha on Monday. The Bill seeks to authorise the RBI to resolve the problem of stressed assets, even as the Opposition demanded that it be sent to a standing committee for scrutiny.
The Bill seeks to amend the Banking Regulation Act, 1949, and replace the Banking Regulation (Amendment) Ordinance promulgated in May. It allows the RBI to open an insolvency resolution process in respect of specific stressed assets.
Some opposition member opposed the Bill and opined that giving such power to RBI will switch its attention from macro-economic issues to micro-economic issues and render the bank management useless. The opposition is demanding the Bill to be examined by the Standing Committee before being laid on the table for discussion.
What will the new Bill do?
The Banking Regulation (Amendment) Bill 2017 will amend The Banking Regulation Act 1949, giving the government power to authorise the RBI to issue directions to banks in order to initiate insolvency resolution in case of a default.
Under the provisions of the Bill, the government can also authorise the RBI to issue directions to banks with regard to resolution of stressed assets and appoint authorities or committees to advise the banking companies on stressed asset resolution.
Before the Bill was introduced in the Parliament, the Banking Regulation (Amendment) Ordinance amended the Banking Regulation Act, 1949 in the same way. Ordinances, however, have to be approved by the Parliament within six weeks of session following the introduction.
Apart from empowering RBI in the above-mentioned ways, the Bill will also give RBI the authority to refer NPA cases to the Insolvency and Bankruptcy Board. The Insolvency and Bankruptcy Board provides for a time-bound resolution of defaults and stressed assets, either by restructuring a loan or liquidating the borrower’s assets.
The RBI in June identified 12 defaulters all over the country, who accounted for 25% of all bad loans in the banking system and is currently focusing on resolving their cases. Some cases like Essar Steel and Bhushan Steel have already been referred to the Insolvency and Bankruptcy Board.
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