President Pranab Mukherjee on Friday approved an ordinance to empower the Reserve Bank of India to tackle the problem of mounting bad loans in India’s banking sector, ANI reported. The ordinance was proposed on Wednesday. It will be used to amend Section 35A of the Banking Regulation Act, 1949, which regulates the ways in which the RBI can act in such cases.
The amendment allows the RBI to get banks to quickly recover non-performing assets from defaulters. “There is a convention that when some proposal is referred to the president, details of it cannot be disclosed till it is approved,” Finance Minister Arun Jaitley said on Wednesday. “[But now,] As soon as the approval comes, details will be shared.”
Once the amendment kicks in, the RBI will also be able to relax some of the guidelines for banks if needed, an unidentified government official told PTI.
India’s public sector banks have nearly Rs 6 lakh crores in non-performing assets, which are also called bad loans. Bad loans rose by more than Rs 1 lakh crores in the first nine months of the last financial year to Rs 6.07 lakh crores by December 31, 2016. The gross non-performing assets of these banks stood at Rs 5.02 lakh crore at the end of March 2016, up from Rs 2.67 lakh crores at the end of March 2015.