Earlier in the day, President Pranab Mukherjee signed the ordinance for dealing with bad debt problems of Indian banks in which the Reserve Bank of India (RBI) gets the power to tell banks to initiate insolvency proceedings against a case of default.
“The central government may by order authorise the Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016,” the Banking Regulation (Amendment) Ordinance 2017 read.
Since the ordinance mentions “a default,” it would mean that the central bank can now initiate the proceedings against any individual entity. Once the proceedings are initiated, it has to be concluded within 180 days. This is a welcome change as the cases won’t drag for years under the myriad acts available under the law.
The resolution process used to get dragged because of a number of reasons, including companies drawing banks to the lengthy litigation process. The inadequate legal infrastructure, including lack of officials at the debt tribunals, meant cases went for many years before getting resolved.
The gross bad debt in Indian banks is more than Rs 6 lakh crore. The total stressed assets, including those restructured, would easily cross Rs 10 lakh crore, according to various estimates.
Here are the highlights of Jaitley’s speech:
In 2016, Parliament enacted Insolvency and Bankruptcy Code, along with that we had also brought about changes in SAFESI Act.
The key problem that remains is that of stressed assets.
Last few years we have been able to bring some structural reforms to the economy.
RBI has come out with different schemes to deal with stressed assets.
Banks necessarily need to be in a robust position to support growth.
RBI is now authorised to initiate bankruptcy proceedings for stressed assets.