The government has notified the Banking Regulation (Amendment) Act under which it can authorise the RBI to issue directions to banks to initiate insolvency resolution process to recover bad loans.
The banking sector is saddled with non-performing assets (NPAs) of over Rs. 8 lakh crore, of which Rs. 6 lakh crore is with public sector banks (PSBs).
Earlier this month, Parliament had approved the Act, which replaced an ordinance in this regard.
The government in May had promulgated an ordinance authorising the Reserve Bank of India (RBI) to issue directions to banks to initiate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016.
Following the ordinance, the RBI had identified 12 accounts each having more than Rs. 5,000 crore of outstanding loans and accounting for 25 per cent of total NPAs of banks for immediate referral for resolution under the bankruptcy law.
The loan defaulters identified by the RBI include, Essar Steel, Bhushan Steel, ABG Shipyard, Electrosteel and Alok Industries.
Under the Banking Regulation (Amendment) Act, 2017, the RBI can issue directions to banks for resolution of stressed assets.
The RBI can specify authorities or committees to advise banks on resolution of stressed assets. The members on the committees will be appointed or approved by the RBI.
The bulk of the NPAs are in sectors such as power, steel, road infrastructure and textiles.