Skip to main content

Bill Amending Banking Regulation Act Tabled in Parliament

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


Popular posts from this blog

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

New money laundering norms stump jewellery sector

New money laundering norms stump jewellery sector Dealers with turnover of Rs 2 crore and above covered; industry says threshold too low The central government has notified the money laundering rules for the gems and jewellery sector with immediate effect. Now, any entity deals in precious metals, precious stones, or other high-value goods and has a turnover of Rs 2 crore or more in a financial year will be covered under the Prevention of Money Laundering Act, 2002 (PMLA, 2002). The limit of Rs 2 crore would be calculated on the basis of the previous year’s turnover, said the notification. The directorate general of goods and service tax intelligence has been appointed under the Act. Sources said the government’s move to apply the PMLA to the jewellery sector was a fallout of income-tax raids on jewellers soon after demonetisation last November, when it was found that they sold gold and jewellery at a huge premium and accepted old currency notes as payment. The notification, issued on Augus…

Confusion over branded food GST

Confusion over branded food GST The GST Council's statement over the weekend on applying tax on branded food items has left most of the trade confused.

Even though the Council has not changed the rates on food -0 per cent on unbranded stuff and 5 per cent on brands -many small traders who didn't levy GST earlier said they could come under the 5 per cent slab after the clarification.

While they predicted some increase in consumer prices, large players said they can absorb GST in many ways and keep prices steady.

"Trade is confused and hence on behalf of our chamber, we have asked our members to go ahead and charge 5 per cent GST," said Sushil Sureka, general secretary of the Ahilya Chamber of Commerce and Industry in Indore.

The statement clarifying the application of GST came after some businesses were found deregistering their brands and selling under corporate brand name without paying tax, after the Council exempted unbranded food from the new all-encompassing indirec…