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Nationalised banks to tackle bad debts: cabinet recommends an ordinance

Nationalised banks to tackle bad debts: cabinet recommends an ordinance
Picture Courtesy: HT

New Delhi: An ordinance empowering the Reserve Bank of India was recommended on Wednesday, by the cabinet asking banks to act against top 20-25 loan defaulters.

Once Pranab Mukherjee clears the ordinance, the detailed package will be announced in a day or two, which includes several months of consultation reports between RBI, government and bankers, TOI reported.

The main concern is to empower the regulator for specific instruction, moreover, the government can also advise RBI on some cases.

Public sector banks have Rs 6 lakh crore as bad debts, impacting the finances of several lenders. Steps have been taken earlier as well to restore the health of banks but, they seemed to be inadequate.

Banks are fearful of settlement packages because of adverse remarks from Central Vigilance commission and the Comptroller & Auditor General, in addition to facing scrutiny from investigative agencies such as CBI.

The government and RBI are looking to strengthen the current corporate debt restructuring mechanism as a reconstructive measure, that allows them to convert more than 10% of their loans into equity and also provides for a strengthened oversight mechanism. At present, there is a two-member oversight committee comprising former CVC Pradeep Kumar and ex-vigilance commissioner Janaki Ballabh.

Finance minister Arun Jaitley said that the Cabinet had taken certain decision for dealing with the bad debts, “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 the approval comes, details will be shared.”

Banks petitioned Jaitley against some of the measures in RBI’s NPA reduction plan as the Scheme for Sustainable Structuring of Stressed Assets, or S4A, does not allow increasing the tenure of the loan or change in interest rates, restraining the lenders to rework loans. “It is difficult to restructure loans under these circumstances,” a banker told.