Cabinet nod for amendments to banking Act to give more teeth to RBI
The Union Cabinet, led by Prime Minister Narendra Modi, on Wednesday approvedanew framework for dealing with Rs 6 lakh crore worth of non performing assets (NPAs) in the banking system.
The framework includes the promulgation of an Ordinance to amend the Banking Regulation Act to give more teeth to the Reserve Bank of India (RBI) and its oversight committees to act on behalf of banks while deciding on NPAs.The proposals are now awaiting the President´s assent.
“We have taken some decisions regarding the banking sector.There are some modifications for which the President´s assent is required,” Finance Minister Arun Jaitley said at a post cabinet press briefing.“There is a convention that when some proposal is referred to the President, then details of it cannot be disclosed till it is approved.As soon as approval comes, details will be shared,” he added.
The Cabinet also approved a National Steel Policy that aims to give preference to domestically manufactured iron and steel products for government´s infrastructure projects,amove that would boost the sales of debtladen companies.
It also decided to hand over three ITDCHotels located in Madhya Pradesh, Assam, and Rajasthan to the respective state governments after the Centre gives up its stake in them.The properties will be redeveloped and used in accordance with the state governments´ requirements.
In the case of Bhopal and Guwahati, the India Tourism Development Corporation (ITDC) will be divesting its share of 51 per cent in the joint venture company formed for operating the hotels.The Bharatpurhotel , which the corporation is only managing, will be returned to the state government.
On the decisions regarding NPAs,atop government official said the Banking Regulation Act would be amended through an Ordinance, which was why the framework had been sent to the President.
Sources told Business Standard that the amendments could give the RBI an explicit mandate to intervene on behalf of stateowned banks when deciding on how to deal with NPAs.
Analysts say that while nothing prevents the banking regulator from intervening and approving decisions regarding NPAs by banks, there is no enabling provision.
The Ordinance will set in motion a process under which the RBI and its over sight committees will have a greater say in how toxic assets are dealt with. The framework also envisages amendments to the Prevention of Corruption Act (PCA). The PCA amendments will allow commercially viable decisions by banks which are later not scrutinised by probe 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 the RBI to monitor progress of the top 3540 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 over seeing 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 JLFreachesadeadlock, said an 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 exposureas well as the number of banks within a JLF for taking a decision on NPAs.
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 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. The Cabinet also cleared a new pension package for armed services.Soldiers, sailors and airmen of the three defence services will hereafter be paid salaries recommended by the 7th Central Pay Commission (7th CPC).The new scales will be paid with effect from January 1,2016.
OTHER DECISIONS
National Steel Policy:
Approves a new policy, which envisages Rs 10 lakh crore investment to create more capacity in the steel sector
ITDC properties:
Approves disinvestment of hotels and properties of the India Tourism Development Corporation at Bhopal, Bharatpur and Guwahati
Disability pension for defence pensioners:
Approves retention of percentage based regime of disability pension implemented after Sixth Pay Commission
SAMPADA:
Approves Scheme for Agro-Marine Processing and Development of Agro-Processing clusters with Rs 6,000 crore outlay
PDS sugar subsidy:
Restores subsidy for states to ensure sale of 1 kg of sugar at a cheaper rate for about 20 million families covered under the Antyodaya Anna Yojana
Business Standard New Delhi, 04th May 2017
The Union Cabinet, led by Prime Minister Narendra Modi, on Wednesday approvedanew framework for dealing with Rs 6 lakh crore worth of non performing assets (NPAs) in the banking system.
The framework includes the promulgation of an Ordinance to amend the Banking Regulation Act to give more teeth to the Reserve Bank of India (RBI) and its oversight committees to act on behalf of banks while deciding on NPAs.The proposals are now awaiting the President´s assent.
“We have taken some decisions regarding the banking sector.There are some modifications for which the President´s assent is required,” Finance Minister Arun Jaitley said at a post cabinet press briefing.“There is a convention that when some proposal is referred to the President, then details of it cannot be disclosed till it is approved.As soon as approval comes, details will be shared,” he added.
The Cabinet also approved a National Steel Policy that aims to give preference to domestically manufactured iron and steel products for government´s infrastructure projects,amove that would boost the sales of debtladen companies.
It also decided to hand over three ITDC
In the case of Bhopal and Guwahati, the India Tourism Development Corporation (ITDC) will be divesting its share of 51 per cent in the joint venture company formed for operating the hotels.The Bharatpur
On the decisions regarding NPAs,atop government official said the Banking Regulation Act would be amended through an Ordinance, which was why the framework had been sent to the President.
Sources told Business Standard that the amendments could give the RBI an explicit mandate to intervene on behalf of stateowned banks when deciding on how to deal with NPAs.
Analysts say that while nothing prevents the banking regulator from intervening and approving decisions regarding NPAs by banks, there is no enabling provision.
The Ordinance will set in motion a process under which the RBI and its over sight committees will have a greater say in how toxic assets are dealt with. The framework also envisages amendments to the Prevention of Corruption Act (PCA). The PCA amendments will allow commercially viable decisions by banks which are later not scrutinised by probe 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 the RBI to monitor progress of the top 3540 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 over seeing 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 JLFreachesadeadlock, said an 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 exposureas well as the number of banks within a JLF for taking a decision on NPAs.
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 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. The Cabinet also cleared a new pension package for armed services.Soldiers, sailors and airmen of the three defence services will hereafter be paid salaries recommended by the 7th Central Pay Commission (7th CPC).The new scales will be paid with effect from January 1,2016.
OTHER DECISIONS
National Steel Policy:
Approves a new policy, which envisages Rs 10 lakh crore investment to create more capacity in the steel sector
ITDC properties:
Approves disinvestment of hotels and properties of the India Tourism Development Corporation at Bhopal, Bharatpur and Guwahati
Disability pension for defence pensioners:
Approves retention of percentage based regime of disability pension implemented after Sixth Pay Commission
SAMPADA:
Approves Scheme for Agro-Marine Processing and Development of Agro-Processing clusters with Rs 6,000 crore outlay
PDS sugar subsidy:
Restores subsidy for states to ensure sale of 1 kg of sugar at a cheaper rate for about 20 million families covered under the Antyodaya Anna Yojana
Business Standard New Delhi, 04th May 2017
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