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2-min read

Govt Clears New Ordinance to Deal With Loan Defaulters

In the case where the NPAs value has been completely eroded, they could be taken over by a so-called National asset management company. In case they are not resolved by December 31 they would automatically be sent to the National Company Law Tribunal, which adjudicates issues relating to companies.

Sumit Pande, Tushar Dhara

Updated:May 4, 2017, 8:07 AM IST
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Govt Clears New Ordinance to Deal With Loan Defaulters
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New Delhi: Finance Minister Arun Jaitley said that the Cabinet on Wednesday had taken “important decisions” regarding the banking sector and sent the recommendations to the President for his assent.

However, the details of the decisions cannot be made public till such time as the President signs off on the recommendations, Jaitley said at a press conference after the cabinet meeting.

It is being widely speculated that the Cabinet has sent an ordinance on Non Performing Assets (NPAs) to the President, since Parliament is not in session. Although the contents of the ordinance are currently not known, a source told CNN-News18 that it aims to empower the RBI to direct banks to act against willful defaulters and promoters under the Bankruptcy Code
.

The ordinance is likely to get the Presidential nod tonight and the details may be made public tomorrow, CNBC TV18 reported.

Indian banks have been labouring for long under a mountain of Non Performing Assets, or loans which have gone bad.

Their resolution will enable the liquidation of bad loans and ensure that credit starts flowing through the economy again. Government sources have indicated to News18 that resolving NPAs is the single biggest economic issue.

The total level of NPAs in the Indian economy could be to the order of Rs 6.5 lakh crore.

The ordinance will later be legislated as an Act when Parliament reconvenes and will likely cut red tape in dealing with cases of NPAs and contain specific instructions to enable banks to settle pending cases.

There are different interpretations about how the ordinance could go about tackling the NPAs issue. One is that it seeks to amend the RBI Act while another is that it could amend the Banking Regulations Act.

RBI Deputy Governor Viral Acharya in February floated two proposals. One was that in cases of NPAs whose value could still be partly redeemed, the banks could consider an asset management company (AMC).

Under this scenario, the top 40-50 bad loans would be resolved by banks till December 31 by getting the AMC to take them over and turn them around. This would involve some amount of write down.

In the case where the NPAs value has been completely eroded, they could be taken over by a so-called National asset management company. In case they are not resolved by December 31 they would automatically be sent to the National Company Law Tribunal, which adjudicates issues relating to companies.

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| Edited by: Nakshab Khan
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