Mains Paper 3: Economy | Mobilization of resources
From UPSC perspective, the following things are important:
Prelims level: NPA
Mains level: Banking Regulation (Amendment) Bill, 2017
- Rajya Sabha passed the Banking Regulation (Amendment) Bill, 2017. The Bill replaces the Banking Regulation (Amendment) Ordinance, that was passed in May 2017
- The Banking Regulation (Amendment) Ordinance was promoted on May 4 to address high levels of stress faced by the banking sector at the time.
- The RBI had, in June, identified 12 ‘defaulters’ who account for around 25% of India’s non-performing assets (NPA) and informed banks to take up insolvency proceedings against them
- Sectors that had the most NPAs were Steel, Infrastructure, Power and Textiles.
- Public sector banks were hit the most as big industrial and infrastructure programmes were supported by them in the hope that there would be further expansion.
What does the Bill do?
- It empowers RBI to give directions to banks to act against loan defaulters.
- The Bill seeks to amend the Banking Regulation Act, 1949 by inserting provisions for handling cases related to stressed assets.
- Stressed assets are loans on which the borrower has defaulted or it has been restructured.
- The Central Government can authorise the RBI to issue directions to banks for initiating proceedings in case of a default in loan repayment. These proceedings would be under the Insolvency and Bankruptcy Code, 2016.
- The RBI may also form committees to advise banks on the resolution of stressed assets. The members will be appointed or approved by the RBI.
What is a ‘Non-Performing Asset – NPA ?
- A nonperforming asset (NPA) refers to a classification for loans on the books of financial institutions that are in default or are in arrears on scheduled payments of principal or interest.
- In most cases, debt is classified as nonperforming when loan payments have not been made for a period of 90 days.