The government has notified the Banking Regulation (Amendment) Act.
What is the need?
The banking sector is stressed with non-performing assets (NPAs) of over Rs 8 lakh crore.
The bulk of the NPAs are in sectors such as power, steel, road infrastructure and textiles.
So in May the government had promulgated an ordinance authorising the RBI to issue directions to banks to initiate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016.
Following this, the RBI had identified 12 accounts each having more than Rs 5,000 crore of outstanding loans and accounting for 25% of total NPAs of banks for immediate referral for resolution under the bankruptcy law.
The loan defaulters identified by the RBI include, Essar Steel, Bhushan Steel, ABG Shipyard, Electrosteel and Alok Industries.
This act replaces the Banking Regulation Ordinance.
What are the highlights of the act?
Under the act the government can authorise the RBI to issue directions to banks to initiate insolvency resolution process to recover bad loans.
RBI can issue directions to banks for resolution of stressed assets.
The RBI can specify authorities or committees to advise banks on resolution of stressed assets. The members on the committees will be appointed or approved by the RBI.
The Bill inserts a provision to state that it will also be applicable to the State Bank of India, its subsidiaries, and Regional Rural Banks.
