The Minister of Finance, Mr. Arun Jaitley, on July 24, 2017 introduced the Banking Regulation (Amendment) Bill, 2017 in the Lok Sabha. This regulation seeks to bring about alterations in the Banking Regulation Act, 1949 by amending its various provisions by inserting new provisions necessary for handling cases related to stressed assets. “Stressed assets are known as those loans where the borrower has defaulted in repayment or where the loan has been restructured (such as by changing the repayment schedule). The non-performing assets of banks have increased to more than Rs 9 lakh crore and now RBI is empowered to refer the cases to Insolvency and Bankruptcy Board. In June, RBI had identified 12 large loan defaulters who account for 25% of the total bad loans in the Indian banking system”1.
The recently issued Banking Regulation (Amendment) Ordinance is recognized by many as a fascinating bullet to rectify the NPA crisis that has surpassed the banking sector in India. The Ordinance approves the Reserve Bank of India (RBI) to commence insolvency plan in respect of a company being at defaulting in the Insolvency and Bankruptcy Code, 2016, to issue supervisions to banks to reconcile their stressed assets and establish committees to “advise” banks on resolution of stressed assets. While the Ordinance surely authorises the RBI to commence insolvency litigations against the party at faults, it also dissolve RBI’s role as an individualistic who regulates by including it as a supporter and an guide in the operation of contacting with the defaults. The Gross Non-Performing Assets (GNPA) of the public sector banks (PSBs) have surged to a mind boggling level of Rs 6,14,870 crores, which, on the average, constitute 11% (GNPA Ratio) of their Gross Advances. RBI’s Financial Stability Report suggests that “the GNPA Ratio may increase to 12.5% this year and 12.
9% next year, which could increase further under a severe stress scenario”. Enumerating to these misery, it has been the adverse impact of demonetisation on many SMEs. Unquestionably, it is peak time that the government does whatever possible within its capacity to face this situation of crisis on a war footing. To this extent, the Ordinance emerged is welcomed but it can at best be a sedative, not a forever cure.
To interpret the origin of the NPA problem, one must evaluate critically the elements that have let to this unparalleled circumstance. 1 https://rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=7357