Govt may bring in amendment in Banking Regulation Act or issue an ordinance to empower RBI.
Mumbai: Public Sector Banks in India are the most worried lot among public sector enterprises (PSUs). Reason: They are sitting on a huge stockpile of bad loans.
Some of the big public sector undertakings are in government's crosshairs as it wants to raise Rs 72,000 crore from their 'strategic sale'.
According to a latest estimate, government banks had a whopping over Rs 6 lakh crore worth of bad loans during April-December 2016. So far the banks themselves have failed to either resolve the issue or come up with a formula to tackle them.
As a consequence, the government now has decided to directly intervene in the matter and for the purpose it is considering a number of options.
Presently, RBI cannot directly intervene in the issue as its primary function is that of a regulator. Here are a few things that you must know about the steps being taken to resolve the issue.
1) The government may bring in an amendment to the Banking Regulation Act so as to extend more empowering rules to the RBI. The move aims at giving the central bank teeth in the fight against bad assets.
2) Another likely option before the government is taking to ordinance route instead of a legislative exercise. Government wants to issue an ordinance in the regard with enabling provisions for RBI.
3) Bad loans rose by over Rs 1 lakh crore in the first nine months of last fiscal to Rs 6.07 lakh crore by December 31, 2016, minister of state for finance Santosh Gangwar had said in a written reply to the Rajya Sabha, according to The Economic Times.
4) High level of bad loans has bogged down banks' lending sentiments and also stopped them from going for a further cut in interest rates. Absence of a lower interest rate regime has thwarted private investments that is needed to spur economic growth.
5) Public Sector Banks have so far failed to resolve the issue of bad assets through mutual accords or by selling bad loans to asset reconstruction companies as they fear they will be hauled up by vigilance.