With an aim to tackle the rising non-performing assets (NPAs) of public sector banks, the Union Cabinet, led by Prime Minister Narendra Modi, has cleared an ordinance empowering the Reserve Bank of India (RBI) to act against top loan defaulters. The ordinance has been sent to the president for approval.
The ordinance will allow the RBI to deal with bad loans on a case-to-case basis as opposed to following a set of broad guidelines and rules for all non-performing assets (NPAs). The amended law will also empower RBI to set up oversight panels that will shield bankers from later action by probe agencies looking into loan recasts as a lot of discretion will be involved in the process. In addition, the central bank will be able to give specific solutions for specific cases.
Public-sector banks are burdened with NPA or bad loans to the tune of a staggering Rs 6 lakh crore. Bad loans rose by over Rs 1 lakh crore in the first nine months of last fiscal to Rs 6.07 lakh crore by December 31, 2016. Public sector banks' gross bad loans stood at Rs 5.02 lakh crore at the end of March 2016, up from Rs 2.67 lakh crore at the end of March 2015.