August 16, 2017
The Bill empowers RBI to give directions to Banks to act against loan defaulters under Banking Laws.
The Rajya Sabha, on Thursday, passed Banking Regulation (Amendment) Bill, 2017.
This Bill replaces Banking Regulation (Amendment) Ordinance that was passed in May 2017 after Budget session of Parliament.
What does this Bill do? This Bill basically empowers the RBI (Reserve Bank of India) to give directions to banks to act against loan defaulters.
Bill seeks to amend Banking Regulation Act, 1949 by inserting certain provisions for handling cases related to the stressed assets. Stressed assets are the loans on which borrower has defaulted or has been restructured.
RBI may from time to time issue directions to the banks for resolution of the stressed assets. Central Govt. can authorize RBI to issue directions to the banks for initiating proceedings in case of a default in a loan repayment. The proceedings would be under the Insolvency and Bankruptcy Code, 2016.
RBI may also form committees to advise banks on the resolution of stressed assets. The members'll be appointed/approved by the RBI.
What's the background? Banking Regulation (Amendment) Ordinance was promoted on 4th May to address the reportedly high levels of stress faced by the banking sector at the time.
In June, the RBI had identified 12 defaulters' who account for about 25% of India's non-performing assets (NPA) & informed banks to take up insolvency proceedings against them.
NPA is a loan/advance for which the borrower has failed to repay the principle/interest for a period of ninety days. Union Finance Minister Arun Jaitley told the Parliament earlier this month that the "proceedings had been initiated in 12 cases". The RBI is expected to refer more cases to the banks.
On July 24, 2017, the Banking Regulation (Amendment) Bill was passed in the Lok Sabha.
How did the Opposition react? Trinamool Congress member Sougata Ray said it was a “desperate step by a desperate government.”
When asked about the urgency to pass the Bill, Mr Arun Jaitley said that it's "already too late" & that the rising NPAs was affecting banks' capacity to lend money to the smaller creditors which in turn was impacting growth.
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Banking Regulation Act,1949
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