Why in news?
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.
Source: Business Line
