New DelhiThe process of resolution of bad loans will start shortly, Finance Minister Arun Jaitley said today in the Lok Sabha as it passed a bill which gives RBI the power to direct banking companies to resolve the problem of stressed assets.
Replying to a debate on the Banking Regulation (Amendment) Bill, 2017, Jaitley said the Reserve Bank has already identified top 12 loan defaulters and more cases will be taken up by them for resolution.
“No one can claim the right of equality in not paying banks back. RBI has taken up some difficult cases… I am sure they will take up more,” Jaitley said.
The Banking Regulation (Amendment) Bill, 2017, seeks to amend the Banking Regulation Act, 1949 and replace the Banking Regulation (Amendment) Ordinance, 2017, which was promulgated in May this year. The bill was later passed by the Lok Sabha by a voice vote.
Winding up the debate on the bill, Jaitley said some laws were outdated and were acting as “impediment” instead of “expediting resolution”.
“We will shortly see the process of resolution coming…
Any form of resolution is possible… We need to save the companies, the jobs and we need liquid companies to pay the banks,” the finance minister said.
Moving on fast-track, the RBI had in June identified 12 large loan defaulters who account for 25 per cent of the total bad loans in the banking sector.
Action under the Insolvency and Bankruptcy Code has already begun in certain cases, including Essar Steel, Bhushan Steel and Bhushan Power & Steel.
Jaitley said the loans were given during the boom period before the 2008 global financial crises and the present government is trying to find a solution of the non-performing loans.
Replying to opposition charge that bad loans are higher in public sector banks, Jaitley said PSU banks are leaders when it comes to lending for economic development and to industry. Private sector banks have safer portfolio and are more into retail banking, he said.
“There is a risk in industrial financing and PSU banks do it,” he said.
With stressed assets reaching “unacceptably high level”, the government had brought the Bill replacing the Ordinance.
The measure allows the RBI to initiate insolvency resolution process on specific stressed assets.
The RBI would also be empowered to issue other directions for resolution, appoint or approve for appointment, authorities or committees to advise the banking companies for stressed asset resolution.
Banks may need 20% incremental provisioning for 50 large NPAs
Banks may need to do an incremental provisioning of 20 per cent for 50 large stressed accounts to absorb any losses, says a report.
These 50 large accounts are from the sectors such as construction, power and metals, among others and constitute about half of the gross non-performing assets of the banking sector.
“Banks may require an incremental provisioning of 20 per cent against cumulative debt of 50 large stressed assets worth over Rs 4.3 lakh crore,” says a joint report by Assocham and rating agency Crisil.
While banks may have already provisioned for a part of these exposures, they need to adequately capitalise to absorb such losses which could fuel credit growth and support the next leg of economic growth, it said.
On Insolvency and Bankruptcy Code (IBC), the report said there is a need to address various challenges such as inter-credit conflicts, ability of large corporates to delay the recovery process and burden on the National Company Law Tribunal (NCLT)/ Debt Recovery Tribunal (DRT).
Roll-out of the ecosystem including adequate number of tribunals, insolvency professionals and information utilities, a limited timeline for the formulation of resolutions and access to the secondary market are needed in case of liquidation for successful implementation of the IBC, it said.
“The success of the code hinges on strengthening its ecosystem, which will help in protecting the interest of stakeholders, instilling financial discipline among borrowers and create a robust platform to attract investors,” the report noted.
It said though the IBC is expected to face teething troubles before fully taking off, its stakeholders are expected to reap greater benefit in the long run.
Along with banks and asset reconstruction companies (ARCs), the IBC will benefit corporates, professionals and employees, boost investor confidence, and facilitate deepening of the domestic corporate bond market, it added.
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