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With Rs 6 lakh cr NPAs, PSBs may be asked to auction stressed assets

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Currently, PSBs are saddled with NPAs or bad loans to the tune of a staggering Rs 6 lakh crore

Dilasha Seth  |  New Delhi  May 4, 2017 Last Updated at 16:22 IST

State-owned banks reeling under the burden of may be asked to put defaulter companies’ assets on the block. 


On Wednesday, the approved an ordinance to empower the central bank by amending the Banking Regulation law to give it more teeth and set up oversight committees to intervene on behalf of banks while deciding on non-performing assets (NPAs).


There will also be fresh guidelines for the public auction of assets by public sector banks.


“The large, cash-rich public sector undertaking will be encouraged to buy the auctioned assets in their sector by the state-owned banks,” said an official.


The amendment of section 35A of the Banking Regulation Act, 1949, will give the Reserve Bank of India (RBI) the right to issue directives in the interest of banks.


President Pranab Mukherjee is expected to give his assent to the ordinance shortly.


The stressed banks may also be encouraged to take a haircut in case of genuine business failure.  


Currently, public sector banks (PSBs) are saddled with NPAs or to the tune of a staggering Rs 6 lakh crore.


Finance Minister Arun Jaitley on Wednesday said that the has taken some important decisions with respect to the banking sector which have been referred to the President for assent. 


Currently, there is no enabling provision that allows the to act on behalf of for resolving


The framework will also envisage amendments to the Prevention of Corruption Act (PCA), allowing commercially viable decisions by banks which are later not scrutinised by probe agencies. Both the amendments are possible in the monsoon session of the Parliament, Business Standard has learnt.


The will also recommend setting up multiple oversight committees under the aegis of the to monitor progress of the top 35-40 NPAs in value terms, which constitute 60 per cent of all NPAs. These 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 reaches a deadlock, said an official.


According to 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 members on projects which have 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.

With Rs 6 lakh cr NPAs, PSBs may be asked to auction stressed assets

Currently, PSBs are saddled with NPAs or bad loans to the tune of a staggering Rs 6 lakh crore

Currently, PSBs are saddled with NPAs or bad loans to the tune of a staggering Rs 6 lakh crore

State-owned banks reeling under the burden of may be asked to put defaulter companies’ assets on the block. 


On Wednesday, the approved an ordinance to empower the central bank by amending the Banking Regulation law to give it more teeth and set up oversight committees to intervene on behalf of banks while deciding on non-performing assets (NPAs).


There will also be fresh guidelines for the public auction of assets by public sector banks.


“The large, cash-rich public sector undertaking will be encouraged to buy the auctioned assets in their sector by the state-owned banks,” said an official.


The amendment of section 35A of the Banking Regulation Act, 1949, will give the Reserve Bank of India (RBI) the right to issue directives in the interest of banks.


President Pranab Mukherjee is expected to give his assent to the ordinance shortly.


The stressed banks may also be encouraged to take a haircut in case of genuine business failure.  


Currently, public sector banks (PSBs) are saddled with NPAs or to the tune of a staggering Rs 6 lakh crore.


Finance Minister Arun Jaitley on Wednesday said that the has taken some important decisions with respect to the banking sector which have been referred to the President for assent. 


Currently, there is no enabling provision that allows the to act on behalf of for resolving


The framework will also envisage amendments to the Prevention of Corruption Act (PCA), allowing commercially viable decisions by banks which are later not scrutinised by probe agencies. Both the amendments are possible in the monsoon session of the Parliament, Business Standard has learnt.


The will also recommend setting up multiple oversight committees under the aegis of the to monitor progress of the top 35-40 NPAs in value terms, which constitute 60 per cent of all NPAs. These 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 reaches a deadlock, said an official.


According to 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 members on projects which have 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.

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Dilasha Seth

Business Standard

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