The Banking Regulation Act, 1949 was approved by President Pranab Mukherjee on Friday. The act has now been integrated with the needful amendments, thereby empowering Reserve Bank of India and making its policies more stringent against loan defaulters.
“The Central government may by order authorise the Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016,” the ordinance said.
“The Reserve Bank may specify one or more authorities or committees with such members as the Reserve Bank may appoint or approve for appointment to advise banking companies on resolution of stressed assets,” the ordinance said.
The RBI can now issue needful directions to the banking companies to resolve and mitigate the issue of stressed assets.
The NPA framework is likely to appear as a win-win situation for both banks and cash-rich PSUs. “Large cash-rich public sector companies will be encouraged to buy the assets being auctioned in their sector by the state-owned banks.”
The need for this resolution clause was felt more after Kingfisher owner Vijay Mallya crossed national boundaries and fleeted off to United Kingdom to escape from the penalty of loan defaulting. Although a join team has been sent to United Kingdom to ensure he is caught, his misdeeds instigated the authorities to introduce these changes.
The bankers have long been demanding protection of commercial decisions from vigilance inquiries. After IDBI Bank had sanctioned a loan of Rs 950 crore to Kingfisher Airlines without inspecting its repayment ability, bank’s stakeholders created a furore to get insights into bank’s commercial decisions.
Although, the Central Bureau of Investigation arrested former officials of IDBI Bank Ltd, including a former chairman, their money hasn’t returned yet. The Indian government, however, is taking baby steps towards catching the convict.
This fear has prevented lenders from sacrificing a part of the amount due to them and pushing through sales of stressed assets to turnaround specialists and private equity firms.
