The RBI will embark on its biggest banking clean-up exercise after President Pranab Mukherjee promulgated an ordinance authorising it to issue directions to banks to initiate insolvency resolution process in the case of loan default.
The tweak in the rules will help the Modi government tackle toxic loans that have crossed the Rs 6 lakh crore mark.
So, what does this mean?
1) The ordinance promulgated by the government on bad loans has now empowered the RBI to issue directions to banks for resolution of stressed assets. This basically implies the central bank can issue directions to any banking company or banking firms to initiate insolvency resolution process with respect to a default under the provisions of the Insolvency and Bankruptcy Code, 2016.
2) It has also empowered RBI to issue directions to banks for resolution of stressed assets.
3) The law will also empower RBI to set up sector related oversight panels that will shield bankers from later action by probe agencies looking into loan recasts.
4) RBI will be able to give specific solutions with regard to hair cut for specific cases and also, if required, look at providing relaxation in terms of current guidelines.
Ridding bank balance sheets of stressed assets is key to reviving credit growth and furthering Prime Minister Narendra Modi’s goal of creating more jobs in the $2 trillion economy.Various schemes proposed by RBI to resolve the problem have been unsuccessful, with lenders reluctant to write down assets sufficiently and company owners unwilling to negotiate repayment plans.
Stressed assets — bad loans, restructured debt and advances to companies that can’t meet servicing requirements — have risen to about 17 percent of total loans, the highest level among major economies, data compiled by the government shows.
Source : http://economictimes.indiatimes.com/articleshow/58530686.cms
