Union Cabinet approves issuing ordinance to resolve NPAs of banks
The amendment to the existing Banking Regulation Act will empower the RBI to set up panels that will shield bankers from later action by probe agencies looking into loan recasts.
To eliminate the problem of bad loans, the Union Cabinet on 3 May 2017 approved an ordinance to amend the Banking Regulation Act for dealing with the non-performing assets (NPAs) in the banking system.
Details of the ordinance will be revealed after President Pranab Mukherjee gives his assent to an ordinance to amend the Banking Regulation Act to resolve the Non-Performing Assets crisis.
The promulgation of the ordinance was given a green signal during the cabinet meeting chaired by Prime Minister Narendra Modi.
The set of measures includes the promulgation of an Ordinance to amend the Banking Regulation Act to give more powers to Reserve Bank of India (RBI) and its committees to act on behalf of banks while deciding on NPAs.
Reports suggest that the ordinance seeks to amend Section 35A of the Banking Regulation Act. This section of the act empowers the Reserve Bank to issue directions to the banks in the public interest and depositors.
Currently, the Public Sector Banks (PSBs) are saddled with non-performing assets or bad loans to the tune of a staggering Rs 6 lakh crore.
Non Performing Assets
A Non-Performing Asset (NPA) means a credit facility with respect of which the interest/instalment on the principal has not been paid for a specific period of time. In most cases, debt is classified as non-performing when loan payments have not been made for a period of 90 days.
NPA is used by financial institutions that refer to loans that are in jeopardy of default.