RBI to soon start picking bad loan cases for action

Armed with additional legislative powers, the RBI will soon start identifying cases for resolution of non-performing assets in consultation with IBA for necessary action, a senior government official said.
The government will not get into individual cases as it has already given authorisation to the banking regulator RBI to resolve NPA cases through the ordinance passed last week, the finance ministry official said.
"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," the official said.

The Indian Banks' Association (IBA) and the corporate debt restructuring cell already have information about the NPA cases that have not come to fruition. The central bank can seek such cases and pass direction to banks on specific ones, the official said, adding that the ordinance is expected to break logjam in accounts that have gone through the JLF process, but not been resolved.
Soon after the passage of the ordinance, the RBI last week made substantial changes in the norms for dealing with stressed loans and warned banks that they will be penalised for missing 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.

At any point, the RBI can issue more guidelines to make the process more effective, the official said, adding that haircut is a commercial decision and will be taken by banks.

However, the official said the oversight committee (OC) will be vetting the entire process of resolution so that banks get comfort as far as any future scrutiny is concerned.
The RBI may set up more such committees depending on the requirement and could preclude any sector-specific OC, the official added.
NPAs, which have gone beyond the Rs 8 lakh crore mark, make the effectiveness of the resolution imperative, the official said.

Last week, the government empowered the RBI to direct banks to initiate insolvency proceedings to recover bad loans.
Finance Minister Arun Jaitley had said ordinance gives the Reserve Bank powers 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".
He had said the banks had an unacceptably high level of non-performing assets (NPAs) which hinder their capacity to fund economic activities.