RBI, IBA to select cases for resolution of NPAs

NEW DELHI: The Reserve Bank of India will identify cases of bad debt to be taken up for resolution under the new non-performing assets ( NPA) ordinance in consultation with Indian Banks’ Association ( IBA), a finance ministry official said on Monday.

The government has no intention to get into individual cases and it has already given authorisation to the banking sector regulator, the official said. “Those cases which have been already examined by joint lenders’ forum (JLF) but not reached logical conclusion after that will be looked at,” the person said. “Such cases would be taken up by RBI and the regulator can direct banks for resolution.”

IBA and corporate debt restructuring cell already have information about such NPA cases, the official said. Last week the government amended the Banking Regulation Act, 1949, through an ordinance that has empowered RBI to issue directions to banks for resolution of stressed assets.

Through the ordinance, the government has inserted Section 35 AA in the Act, under which the central government may by order authorise RBI to issue directions to banking companies to initiate insolvency resolution following defaults.

“We expect this ordinance will break the logjam in accounts which have gone through JLF process but not resolved,” the official said.

Through this authorisation, RBI can issue more guidelines to make NPA resolution process more effective, the official noted, adding that haircut in the process of resolution of NPA is a commercial decision and it would be taken by the banks.

Last week, RBI made substantial changes in the norms for dealing with stressed loans and warned banks they will be penalised for missing NPA resolution timelines. Also, banks’ consent for action against borrowers in consideration arrangement was brought down to 60 per cent fromthe earlier level of 75 per cent.