New Delhi: In a major decision aimed at tackling the mounting non-performing assets (NPAs) of public sector banks, the Union Cabinet on Wednesday night issued an ordinance to amend the Banking Regulation Act that will empower the RBI to go after defaulters.
The Cabinet is believed to have approved a policy on bad debts (NPAs), which is being forwarded to President Pranab Mukherjee for approval. The President is likely to clear the ordinance on Wednesday night itself.
"It is an amendment in the Banking Regulation Act. Since Parliament is not in session, it will be issued as an ordinance, which needs President's approval," official sources told IANS.
Finance Minister Arun Jaitley gave hints on the decision, but declined to go into the details citing protocol constraints about disclosing something even before the President gets it.
Jaitley merely said the Cabinet has taken an "important decision" relating to the banking sector. Media attempts to elicit details from him failed.
It is believed that the ordinance would give powers to the Reserve Bank of India (RBI) to take strict action against defaulters while being lenient in cases of genuine business failures.
The policy is also likely to contain guidelines regarding public auction of assets of the defaulting companies or individuals.
The ordinance assumes significance in the context of the government's attempts to get Vijay Mallya extradited to India. His Kingfisher Airlines had defaulted to the tune of about Rs. 9,000 crore in loans to public sector banks. As banks started hounding him for recovery of their loans, Mallya fled to London last year.
Informed sources said the details of the amendments may be disclosed once the President gives his approval.
According to a study, the current financial stress in the Indian banking system is estimated at Rs 11.80 lakh crore, of which gross NPAs of Rs 2.44 lakh crore have been sold to Asset Reconstruction Companies (ARCs).
The study was jointly carried out by industry body Associated Chambers of Commerce and Industry of India, Society of Insolvency Practitioners of India and Edelweiss.