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RBI’s powers to tackle bad loans: Arun Jaitley

LiveMint logoLiveMint 05-05-2017 PTI

New Delhi: Reserve Bank of India (RBI) has been given powers to identify specific loans gone bad and enforce quicker resolution with the government amending the banking law through an executive order, finance minister Arun Jaitley said on Friday.

President Pranab Mukherjee signed on Thursday the ordinance to amend the Banking Regulation Act, giving RBI powers to direct banks to initiate insolvency and bankruptcy in case of default, he told reporters in New Delhi. Here are the highlights of what he said about the measures to tackle bad loans

On what the amendments seek to do: “Second part (section 35 AB) relates to specific directions and the formation of oversight committees. Even in relation to resolution of specific accounts either within the insolvency bankruptcy act or under any other JLF (joint lending forum) framework, the RBI would be empowered to deal with this matter.”

On conflict of interest for the RBI: This will “expedite commercial decisions. Paralysis in the name of autonomy needs to be broken.”

On other steps being taken: “When MOUs (memorandum of understanding) are signed with PSBs (public sector banks) which seek capitalization … there would some specific provisions in those MOUs which would relate to immediate cash release such as sale of assets,closure of non profitable branches, reduction of overheads, business turn around initiatives such as strengthening of credit appraisal process, active NPA management and several others.”

On Oversight Committees protecting banks: “One of the objectives will also be that when bankers taken commercial decisions, they must have adequate comfort level and therefore a committee which oversees such JLF arrangements is one step which give them comfort level.”

On amending the Prevention of Corruption Act: “There was a proposed amendment to prevention of corruption act has been introduced in parliament. Standing committee has already considered it and submitted its report.”

He said a list of some of the stressed assets is already with the RBI and it is looking into it. “Present status quo cannot continue. And the present status quo is that not much was moving,” he said.

On the need for an ordinance, he said RBI is required to be empowered in relation to specific stressed assets. Sale of assets, closure of non-profitable branches, reduction of overhead and business turnaround initiatives will be part of the resolution process, he said.

Non-performing assets (NPAs) of banks have risen to about 17% of total loans, the highest level among major economies. They are about 8.4% of the GDP, according to Credit Suisse.

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