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Banking Regulation (Amendment) Bill, 2017 passed by Parliament: Salient points for Banks Exams

Aug 14, 2017 17:01 IST
    Banking Regulation (Amendment) Bill, 2017:  Salient points for Banks Exams
    Banking Regulation (Amendment) Bill, 2017: Salient points for Banks Exams

    On 10th August the Rajya Sabha passed the Banking Regulation (Amendment) Bill, 2017, which will empower the Central Bank of India to direct lender banks to act against loan defaulters. The bill was already passed by Lok Sabha in the first week of August 2017.

    The Bill replaces Banking Regulation (Amendment) Ordinance promulgated in May 2017. It is noticed that just after promulgating the ordinance, RBI had identifies 12 big defaulters who accounts for 25% of the total NPA of India.

    Indian Banking Industry is facing the challenge of Non-Performing Asset (NPA). As per the date released by Ministry of Finance NPAs in the public sector banks alone account for about Rs 6.41 lakh crore at end-March.  So, it is necessary for the regulator of Indian banking industry to intervene in the system to tackle NPA problem.

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    Key characteristic of the bill

    • The amendment allows RBI to issue direction from time to time, for resolution of the stressed asset.
    • The RBI may also form committees to advise banking companies for stresses asset resolution. The members of the committee will be appointed by RBI.
    • The bill also empowers RBI to take initiative to speed up the process of insolvency resolution for specific stress asset.
    • Now RBI can refer the cases to Insolvency and Bankruptcy Board. Earlier there was no prohibition on the issue of willful defaulters expects to publish their names or photographs through advertisements.

     

    What is Non-performing assets?

    As per definition given by RBI, “An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of which the interest and/ or instalment of principal has remained ‘past due’ for a specified period of time. The specified period was reduced in a phased manner as under:

    Year ending March 31

    Specified period

    1993

    four quarters

    1994

    three quarters

    1995 onwards

    two quarters

    Categories of NPA

    Based on the period for which the asset has remained non-performing, non-performing assets can be clasify into three categories:

     

    • Sub-standard Assets
    • Doubtful Assets
    • Loss Assets

    Sub-standard Assets

    A sub-standard asset was one, which was classified as NPA for a period not exceeding two years. With effect from 31 March 2001, a sub-standard asset is one, which has remained NPA for a period less than or equal to 18 months.

    Doubtful Assets

    A doubtful asset was one, which remained NPA for a period exceeding two years. With effect from 31 March 2001, an asset is to be classified as doubtful, if it has remained NPA for a period exceeding 18 months.

    Loss Assets

    A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly.

    (source: RBI website)

     The bill consists all necessary changes in the Banking Regulation Act, 1949 required to face NPA problem. It will clear in near future that how the bill benefited the Indian Banking industry.
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