New Delhi: To deal with bad assets of banks, Union cabinet under Prime minister Narendra Modi on Wednesday approved promulgation of an ordinance to amend the Banking Regulation Act.
President Pranab Mukherjee is expected to give its nod to the ordinance soon. The details of the ordinance is likely to make public once Mr Mukherjee clears it.
“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,” said Union finance minister Arun Jaitley.
State-owned banks are saddled with non-performing assets (NPAs) or bad loans to the tune of a staggering Rs 6 lakh crore. Sources in the finance ministry has blamed the huge pile-up of bad loans as one of the reasons preventing banks from lowering interest rates thus making investments not so lucrative.
According to sources, the ordinance may allow banks to take hair cuts in case of genuine business failure something bankers are reluctant to do without a legal backing.
It will also give the Reserve Bank powers to deal with the issue of non-performing assets and auction of assets. The amended law will also empower RBI to set up oversight panels that will shield bankers from later action by probe agencies looking into loan recasts as a lot of discretion will be involved in the process. However, the government refused to confirm it.
Sources said that the ordinance seeks to amend section 351 of the banking act. The government opted for the ordinance route as the Parliament is not in session.