Rs 9.34 Trillion Bad Loans: President Approves Cabinet Proposal To Enable RBI To Tackle Them

The Logical Indian Crew

May 5th, 2017 / 7:11 PM

Courtesy: Live Mint | Image Credit: Live Mint | forcelebrities

On 3 May 2017, the Cabinet amended the Banking Regulation Act, 1949 to address India’s problem with bad loans and non-performing assets (NPAs). The Cabinet’s amendment put in place a scheme to resolve stressed assets in the banking system – which totalled to about Rs 9.64 trillion as of December 2016.



On 4 May, the President gave his assent to the Cabinet’s ordinance, thus giving the Reserve Bank of India (RBI) a broad range of powers to tackle bad loans.

Details of the amendments are yet to be made public.


The Banking Regulation Act

The Banking Regulation Act regulates all banking firms in India. Initially, the law was applicable only to banking companies. In 1965 it was amended to make it applicable to cooperative banks and to introduce other changes.

The Cabinet amended Section 35A of the Act. This Section defines the powers of the RBI, detailing the supervisory powers of the RBI (explained in pages 56 to 61 here).


Section 35A of the Banking Regulation Act.gbld

India’s bad loans problem

In the last three years, the RBI has been struggling to resolve the bad loan problem. In May 2016, former RBI Governor Raghuram Rajan initiated the Asset Quality Review (AQR) through which the RBI had asked the banks to report stressed loans or even non-performing ones (more details here).

Some of the findings of the AQR were:

  1. A watchlist of potentially bad loans were unearthed.
  2. Raghuram Rajan confessed that the earnings of state-run banks do not look “pretty”.
  3. The findings of the AQR caused the public sector banks market capitalisation to drop due to the poor numbers.
  4. The RBI also asked banks to clear their balance sheets by 2017.

Government says the system will now be more effective in handling bad loans

Finance Secretary Ashok Lavasa told reporters that Wednesday’s amendments to the Banking Regulation Act will help in effectively resolving the bad loans problem.

“It is not possible for me to put down a number on how this (NPAs) will go down, but certainly we feel that these changes will make the system more effective in handling the bad loans,” he said. “We should be able to reach a resolution in many of the cases with the professionalism in the banking system and the participation of promoters themselves.”

The government is expected to make the details of the amendments public soon.


Contributors

Written by :

Edited by :

Share your thoughts..

Related Stories

CIC Slams PMO And RBI

CIC Slams PMO And RBI, Asks To Disclose Wilful Defaulters List And Raghuram Rajan’s Letter On Bad Loans

LIC IDBI

LIC Board Approves Proposal To Acquire 51% Stake In Debt-Ridden IDBI Bank

RBI

RBI Announces New Norms To Tackle Bad Loan

Cabinet Approves Extra Compensation To Central Govt Employees, Raise On Gratuity Cap

No Detention Policy

Union Cabinet Approves Bill That Allows Schools To Fail Students In Std V & VIII

Cabinet Approves 7th Pay Commission Recommendations With 34 Changes, 48 Lakh Employees To Be Affected

Latest on The Logical Indian

Fact Check

Fact Check: From Pakistan’s Flag Waved In Rajasthan To Rahul Gandhi’s U-Turn On Loan Waiver

Awareness

Central Govt Spent Rs 5,245 Cr On Ads Since 2014 Says Union Minister Rajyavardhan Rathore

Exclusive

#SevaSeShadi: This Couple Invited 150 Underprivileged Kids To Their Wedding

Awareness

UP District To Start Cow Census To Prevent Slaughter; Will Register NSA Against Culprits

Awareness

Tickets To Visit Taj Mahal Hiked Five Times To Limit Visitors

News

From Garbage Dump To “India’s Largest Floating Island,” This Bengaluru Lake Is In Limca Book of Records

x

Stories that deserve attention, delivered to your inbox!

Handpicked, newsworthy stories which deserve the attention of a rational generation.