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Cabinet approves new NPA policy to deal with stressed assets

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Centre to handover three ITDC hotels to state governments; steel policy gets nod

The Union Cabinet, led by Prime Minister Narendra Modi, on Wednesday, has approved a new framework to deal with Rs 6 lakh crore worth of non-performing assets in the banking system, a formal announcement of which is expected to be made after President’s ascent to few Ordinances.

The framework includes an ordinance to amend the to give more teeth to the Reserve Bank of India and its oversight committees to act on behalf of banks while deciding on toxic assets.

The cabinet also approved a that aims at giving preference to domestically manufactured iron and steel products for government’s infrastructure projects, a move that would boost the sales of debt-laden companies.

It also decided to handover to three Hotels located in Madhya Pradesh, Assam and Rajasthan to the state government after the Centre exists its stake in them. The properties would now be redeveloped and used as per the state governments requirements.

“We have taken some decisions regarding the banking sector. There are some modifications for which the President’s assent is required,” Finance Minister said at a post-cabinet press briefing.

He declined to comment further, saying that details will be released once President Pranab Mukherjee gives his nod to the decisions.

However, a top government official said in the sidelines of the briefing that the Banking Regulation Act will be amended through an ordinance, which is why the framework has been sent to the President.

Sources have told Business Standard that the amendments could give the RBI an explicit mandate to intervene on behalf of state-owned banks when deciding on how to deal with non-performing assets.

The framework also envisages amendments to the Prevention of Corruption Act (PCA), and

The PCA amendments will allow commercially viable decisions by banks which are not later not scrutinized by probing agencies. Both the amendments are possible in the Monsoon Session of Parliament, Business Standard has learnt.

The new framework envisages setting up multiple oversight committees under the aegis of RBI to monitor progress of the top 35-40 NPAs in value terms, which constitute 60 per cent of all NPAs.

These oversight committees could get an enhanced mandate to help the lenders with their decision-making, including overseeing of joint lenders forums (JLFs), a consortium of bankers dealing with a particular project.

They may also be able to decide on matters such as which bank will take how much ‘haircut’ and to intervene if the JLF reaches a deadlock, said a senior government official.

The framework will also enable a JLF to deal more effectively with NPAs by possibly tweaking the current guidelines and reduce the threshold in terms of exposure as well as the number of banks within a joint lending forum (JLF) for taking a decision on NPAs.

As per current rules, decisions regarding a bad loan or toxic assets are binding on all lenders in a JLF if they are approved by 75 per cent in terms of exposure or 60 per cent in terms of absolute numbers.

However, these thresholds are being seen as too high and hence there could be a change in regulations to enable JLFs to decide on NPAs based on a simple majority.

Banks which are a part of a consortium face problems due to disagreements among them on projects gone bad.

To address that issue, the Centre is expected to bring an enabling provision under which, once a simple majority of the banks, based on their exposure to the bad loan, takes a decision, it will be binding on other banks, who are part of the group.

The new exposure level to be set is likely to be lower than the current 75 per cent.

Meanwhile, the National Steel Policy, focusses on increasing the country’s annual steel production to 300 million tonnes by 2025, entailing an investment of Rs 10 lakh crore by 2030-31.

“India should have a globally competitive steel industry and we want that the per capita steel consumption in the country should be 160 kg by 2030,” Jaitley said.

The existing per capita steel consumption of the country is 60 kg. The government is of the view that surplus steel capacity should be utilized for government funded infrastructure projects. 

Cabinet approves new NPA policy to deal with stressed assets

Centre to handover three ITDC hotels to state governments; steel policy gets nod

The Union Cabinet, led by Prime Minister Narendra Modi, on Wednesday, has approved a new framework to deal with Rs 6 lakh crore worth of non-performing assets in the banking system, a formal announcement of which is expected to be made after President’s ascent to few Ordinances. The framework includes an ordinance to amend the Banking Regulations Act to give more teeth to the Reserve Bank of India and its oversight committees to act on behalf of banks while deciding on toxic assets.The cabinet also approved a National Steel Policy that aims at giving preference to domestically manufactured iron and steel products for government’s infrastructure projects, a move that would boost the sales of debt-laden companies. It also decided to handover to three ITDC Hotels located in Madhya Pradesh, Assam and Rajasthan to the state government after the Centre exists its stake in them. The properties would now be redeveloped and used as per the state governments requirements. “We have taken some … The Union Cabinet, led by Prime Minister Narendra Modi, on Wednesday, has approved a new framework to deal with Rs 6 lakh crore worth of non-performing assets in the banking system, a formal announcement of which is expected to be made after President’s ascent to few Ordinances.

The framework includes an ordinance to amend the to give more teeth to the Reserve Bank of India and its oversight committees to act on behalf of banks while deciding on toxic assets.

The cabinet also approved a that aims at giving preference to domestically manufactured iron and steel products for government’s infrastructure projects, a move that would boost the sales of debt-laden companies.

It also decided to handover to three Hotels located in Madhya Pradesh, Assam and Rajasthan to the state government after the Centre exists its stake in them. The properties would now be redeveloped and used as per the state governments requirements.

“We have taken some decisions regarding the banking sector. There are some modifications for which the President’s assent is required,” Finance Minister said at a post-cabinet press briefing.

He declined to comment further, saying that details will be released once President Pranab Mukherjee gives his nod to the decisions.

However, a top government official said in the sidelines of the briefing that the Banking Regulation Act will be amended through an ordinance, which is why the framework has been sent to the President.

Sources have told Business Standard that the amendments could give the RBI an explicit mandate to intervene on behalf of state-owned banks when deciding on how to deal with non-performing assets.

The framework also envisages amendments to the Prevention of Corruption Act (PCA), and

The PCA amendments will allow commercially viable decisions by banks which are not later not scrutinized by probing agencies. Both the amendments are possible in the Monsoon Session of Parliament, Business Standard has learnt.

The new framework envisages setting up multiple oversight committees under the aegis of RBI to monitor progress of the top 35-40 NPAs in value terms, which constitute 60 per cent of all NPAs.

These oversight committees could get an enhanced mandate to help the lenders with their decision-making, including overseeing of joint lenders forums (JLFs), a consortium of bankers dealing with a particular project.

They may also be able to decide on matters such as which bank will take how much ‘haircut’ and to intervene if the JLF reaches a deadlock, said a senior government official.

The framework will also enable a JLF to deal more effectively with NPAs by possibly tweaking the current guidelines and reduce the threshold in terms of exposure as well as the number of banks within a joint lending forum (JLF) for taking a decision on NPAs.

As per current rules, decisions regarding a bad loan or toxic assets are binding on all lenders in a JLF if they are approved by 75 per cent in terms of exposure or 60 per cent in terms of absolute numbers.

However, these thresholds are being seen as too high and hence there could be a change in regulations to enable JLFs to decide on NPAs based on a simple majority.

Banks which are a part of a consortium face problems due to disagreements among them on projects gone bad.

To address that issue, the Centre is expected to bring an enabling provision under which, once a simple majority of the banks, based on their exposure to the bad loan, takes a decision, it will be binding on other banks, who are part of the group.

The new exposure level to be set is likely to be lower than the current 75 per cent.

Meanwhile, the National Steel Policy, focusses on increasing the country’s annual steel production to 300 million tonnes by 2025, entailing an investment of Rs 10 lakh crore by 2030-31.

“India should have a globally competitive steel industry and we want that the per capita steel consumption in the country should be 160 kg by 2030,” Jaitley said.

The existing per capita steel consumption of the country is 60 kg. The government is of the view that surplus steel capacity should be utilized for government funded infrastructure projects. 

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Arup Roychoudhury & Megha Manchanda

Business Standard

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