Guidelines soon to operationalise NPA ordinance

The Reserve Bank is likely to announce within a fortnight the guidelines to operationalise the NPA ordinance so as to expedite the recovery of bad loans which have crossed Rs 8 lakh crore.

The framework would include creation of a separate cell to identify issues pertaining to non-performing assets or bad loans and have a clause providing definitive time-frame for the resolution process, sources said.

The time-frame could range from 60-90 days, they added.

RBI is also considering setting up a special cell which will identify cases for revival or takeover by another company. Besides, it can suggest to a bank to refer a particular case for insolvency and bankruptcy, they said.

RBI has identified about 50 cases for NPA resolution after it was empowered by the government to ask banks to initiate insolvency proceedings, they added.

"The cases which have already been examined by the joint lenders' forum (JLF) but have not reached logical conclusion after that... such cases would be taken up by the RBI and the regulator can direct banks for resolution," a finance ministry official said.

About 10-12 cases like Bhushan Steel and GVK Power will be taken up in the first go, sources added.

Soon after the passage of the ordinance, RBI last week made substantial changes in the norms for dealing with stressed loans and warned banks that they will be penalised for missing the NPA resolution timeline.

The number of creditors by value for consent for NPA resolution has been brought down to 60 per cent from the earlier 75 per cent.

Earlier this month, the government gave wide-ranging legislative powers to the Reserve Bank to issue directions to lenders to initiate insolvency proceedings for the recovery of bad loans.

Non-performing assets or bad loans of public sector banks (PSBs) have reached "unacceptably high levels" of over Rs 8 lakh crore, the bulk of which are in sectors such as power, steel, road infrastructure and textiles.

The ordinance authorises 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 (IBC), 2016".

It has also empowered RBI to issue directions to banks for resolution of stressed assets.

RBI has been equipped with powers to specify one or more authorities to advise banks for dealing with the problem of NPAs which, as per the ordinance, "have reached unacceptably high levels and urgent measures are required for their resolution".

The law will also empower RBI to set up sector-related 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 with hair cut to asset reconstruction companies for fear of 3Cs -- CBI, CAG and CVC.

With the enactment of the amendment, RBI will be able to give specific solutions with regard to hair cut for specific cases and also, if required, look at providing relaxation in terms of current guidelines.

The ordinance, which amends Section 35A of the Banking Regulation Act 1949, will have to be placed in Parliament for approval in the upcoming monsoon session. It has inserted Section 35AA and Section 35 AB in the Act.

The government had earlier enacted the IBC to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner.

It was aimed at maximising the value of assets to promote entrepreneurship, availability of credit and balance the interest of all stakeholders.

Illustration: Dominic Xavier/Rediff.com.