New Delhi, May 3: The government will shortly come out with an ordinance to empower the Reserve Bank to effectively deal with the problem of mounting bad loans in the banking sector.
A proposal to amend Section 35 A of the Banking Regulation Act through the ordinance route was approved by the Cabinet headed by Prime Minister Narendra Modi, sources said.
The amendment will empower the RBI to issue direction to banks to recover non-performing assets (NPAs) from loan defaulters.
The Section 35A empowers the Reserve Bank to issue directions to the banks in the public interest and depositors.
Briefing reporters about the Cabinet meeting Finance Minister Arun Jaitley said the government has taken some important decisions in respect of the banking sector.
"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," he said.
PSBs are saddled with non-performing assets or bad loans to the tune of a staggering Rs 6 lakh crore. Bad loans rose by over Rs 1 lakh crore in the first nine months of last fiscal to Rs 6.07 lakh crore by December 31, 2016.
Gross NPA pf PSBs stood at Rs 5.02 lakh crore at the end of March 2016, up from Rs 2.67 lakh crore at the end of March 2015.
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.
Banks have been reluctant to resolve NPAs through settlement schemes or sell bad loans to asset reconstruction companies for fear of being hauled up by investigation agencies.
Once the law is amended, RBI will be able to give specific solutions for specific cases and also, if required, look at providing relaxation in terms of current guidelines, said a senior government official aware of the deliberations.
Last month, Jaitley had said NPA resolution mechanism was being worked out with the RBI which will put enough pressure
on borrowers to settle dues.
"You see, the amounts are large, but the amounts are restricted. It's not that hundreds and thousands of businesses have created this problem. The problem of big NPA is confined essentially to 30-40, at best 50 companies, and therefore, those 40-50 accounts need to be resolved," he had said.