The RBI can effectively ask banks to deal with defaulters and speedily sort out the Rs. 9.64 trillion bad loan mess. The Non Performing Assets (NPA) problem in the banking system is to a great extent confined to 50 large loan defaulters.
The union cabinet has approved an amendment, together with an ordinance has been sent to the President for his consent, finance minister Arun Jaitley has briefed on Wednesday without elaborating much. The government, however, is expected to announce this package in a day or two, once President Pranab Mukherjee clears the ordinance.
As per sources, the government may be able to advise Reserve Bank on certain cases, but overall the idea is to give power to the regulator to issue specific instructions.
Public sector banks are burdened with NAPs or bad loans of Rs 6.00 lakh crore, which has impacted the finances of several lenders. Though the government had taken steps earlier, it was seen to be insufficient in restoring the health of the banks.
However, banks have been unwilling to work out settlement packages, including sale to asset reconstruction companies at a discount.