The government will shortly come out with an ordinance to empower the Reserve Bank of India to effectively deal with the problem of mounting bad loans in the banking sector.
A proposal to amend Section 35A of the Banking Regulation Act through the ordinance route was approved by the Cabinet, headed by Prime Minister Narendra Modi, sources said.
The amendment will empower the RBI to issue directions to banks to recover non-performing assets (NPAs) from loan defaulters.
Briefing reporters after the meeting, Finance Minister Arun Jaitley said the government has taken some important decisions regarding the banking sector.
“There is a convention that when some proposal is referred to the President, details of it cannot be disclosed till it is approved. As soon as the approval comes, details will be shared,” he said.
Public sector banks are saddled with non-performing assets or bad loans to the tune of a staggering Rs 6 lakh crore.
Bad loans rose by over Rs 1 lakh crore in the first nine months of the last fiscal to Rs 6.07 lakh crore by
December 31, 2016.
Gross NPA of PSBs stood at Rs 5.02 lakh crore at the end of March 2016, up from Rs 2.67 lakh crore at the end of March 2015.
The amended law will also empower RBI to set up oversight panels that will shield bankers from later action by probe agencies looking into loan recasts.
Banks have been reluctant to resolve NPAs through settlement schemes or sell bad loans to asset reconstruction companies for fear of being hauled up by investigation agencies.
Once the law is amended, the reserve bank will be able to give specific solutions to specific cases and also, if required, look at providing relaxation in terms of current guidelines, said a senior government official aware of the deliberations.
Last month, Jaitley had said that the NPA resolution mechanism was being worked out with the RBI which will put enough pressure on borrowers to settle dues.
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