Cabinet approves ordinance that gives teeth to RBI to recover bad loans

It is a significant development on India’s fight against bad loans and non-performing assets (NPAs). Kicking off a long-awaited initiative, the Union Cabinet has approved promulgation of an Ordinance to amend the Banking Regulation Act, which will give teeth to the Reserve Bank of India (RBI) to speed up the recovery of bad loans.

Bad loans have increased over the years, thanks to the willful defaulters, bleeding the Indian economy. The development assumes significance at a time wilful defaulter Vijay Mallya is in his safe haven in London after siphoning up over Rs 9,000 crore of loan taken from different banks in India over a period 11 years.

“The Cabinet has approved a major decision related to the banking sector, which has been sent to the President,” Finance Minister Arun Jaitley told reporters on 3 July without divulging the details of the framework.

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The new framework envisages setting up multiple oversight committees under the aegis of the RBI to deal with the menace.

Reports suggest that changes are being made to the Section 35A of the Banking Regulation Act and certain provisions of the Bankruptcy Code. These changes will give an explicit mandate to the RBI to act against the loan defaulters on behalf of the banks.

According to available data, private sector banks have been jostling with stressed assets of a staggering Rs 10 lakh crore as of December-end. Similarly, the stressed assets of public sector banks are pegged at a whopping Rs 6.07 lakh crore till December end.

Experts say the new framework will help speed up the recovery of bad loans and clean up the balance sheets of the banks.

The NDA government has inherited a legacy of bad loans from the UPA dispensation. Since 2014, the Union Finance Ministry and the RBI have been drawing up strategy for the recovery bad loans.

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