Skip to main content

Bill Amending Banking Regulation Act Tabled in Parliament

By

A Bill amending the Banking Regulation Act, 1949 has been tabled in the Parliament today. Once enacted into law, the Banking Regulation (Amendment) Bill 2017 is expected to replace the ordinance issued by the centre in May 2018. The following are the highlights of the Bill.
The following are the highlights of the Bill. The ordinance inserts provisions for recovery of outstanding loans as per which, the central government may authorise the Reserve Bank of India to direct banks to initiate recovery proceedings against loan defaulters. These recovery proceedings will be under the Insolvency and Bankruptcy Code, 2016.  The Code provides for a time-bound process to resolve defaults by either (i) restructuring a loan (such as changing the repayment schedule), or (ii) liquidating the defaulter’s assets.
The RBI may from time to time issue directions to banks for resolving stressed assets.  Stressed assets are loans where the borrower has defaulted on repayment, or loans which have been restructured. The RBI may specify authorities or committees to advise banks on resolving stressed assets.  Members on these committees will be appointed or approved by the RBI.
The non-performing assets of banks have boosted to more than Rs 9 lakh crore and now RBI is being given power to refer the cases to Insolvency and Bankruptcy Board. 
In June, RBI had identified 12 large loan defaulters who account for 25% of the total bad loans in the banking sector.
Currently, the RBI may issue directions to banks on grounds such as ‘public interest’ and ‘in the interest of banking policy’.  The Ordinance gives RBI additional powers to direct banks to initiate recovery proceedings under the Insolvency and Bankruptcy Code, 2016. 
Further, a majority of NPAs (88%) are in public sector banks where the central government is a majority shareholder. There are possibilities that the government could initiate recovery proceedings against defaulters without having to authorise the RBI to direct banks.
As the banking regulator, the RBI is responsible for maintaining financial stability, while banks have the flexibility to make business decisions.Currently, banks face certain challenges as part of recovery proceedings such as (i) lack of incentives among public sector bankers to recognise losses, (ii) fear of investigation in case of low recoveries, and (iii) insufficient capital to absorb losses.  The Ordinance may not address some of these issues.
The Economic Times, New Delhi, 25th July 2017

Comments

Post a Comment

Popular posts from this blog

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

By
  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...
Post a Comment
Read more

Luxury carmakers urge clarity on GST rates to boost festive season sales

By
  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...
Post a Comment
Read more

Sebi proposes tighter norms for green bond third-party reviewers

By
  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...
Post a Comment
Read more