7:50 am - Tuesday October 24, 2017

President Pranab Mukherjee signs ordinance empowering RBI to act directly against top loan defaulters

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President Pranab Mukherjee has approved an ordinance to amend the Banking Regulation Act, empowering the Reserve Bank of India to act directly against top loan defaulters.
With the promulgation of the Banking Regulation (Amendment) Ordinance by the President, which empowers the Reserve Bank of India (RBI) to act directly against top loan defaulters, government agencies will now be able to chase major bank loan defaulters hammer and tongs.

The Cabinet had on nesday recommended the ordinance empowering the RBI to instruct banks to act against top 20-25 loan defaulters as part of a series of steps aimed at helping lenders get bad debt off their books.

Union Finance Minister Arun Jaitley said a list of some of the stressed assets is already with the RBI and it is looking into it.

“Present status quo cannot continue. And the present status quo is that not much was moving,” he said.

On the need for an ordinance, he said RBI required to be empowered in relation to specific stressed assets.

Sale of assets, closure of non-profitable branches, reduction of overhead and business turnaround initiatives will be part of resolution process, he said.

Although the government had initiated steps to act against defaulters, they were perceived to be inadequate to restore the condition of the banks, which had been reluctant to work out settlement packages. The RBI may, from time to time, issue directions to the banking companies for resolution of stressed assets. The regulatory body can directly initiate action against defaulters.

The RBI may also form committees with members it can choose to appoint to advise banks on the resolution of stressed assets.

As per the ordinance, the government may authorise the RBI to issue directions to banks to initiate insolvency proceedings against defaulters under the bankruptcy code. It will help accelerate the resolution of bad loans worth Rs 9.64 trillion ailing the Indian Banking system.

TRANSPARENT AND MARKET DETERMINING APPROACH

Earlier, banks couldn’t invoke the insolvency and bankruptcy code due to fear of being questioned. Now the RBI directing banks to initiate insolvency will be a transparent and market-determined approach.

The CBI, ED and Income Tax Department have already begun action against major loan defaulters. But with the promulgation of the ordinance, loan defaulters will have a tough time ahead – especially those defaulters who take fraudulently take loans from banks and fail to repay the loans.

Several defaulters are likely to be arrested or have their properties being attached in the near future. Recently the agencies have acted against Vijay Mallya, who is accused of owing banks Rs 9,000 crore.

Similarly Vijay Chaudhry and Sanjay Jhunjhunwala have been arrested in the last 15 days.  Mallya was arrested in London, while Chaudhry and Jhunjhunwala have been arrested form Mumbai and Delhi respectively.

Agencies have attached Vijay Mallya’s properties worth Rs 900 crores, Zoom Developers’s properties worth over Rs 100 crores, Century Group’s properties worth Rs 110 crores, Surya Vinakay Group’s properties worth  Rs 88 crores, and Winsome Diamonds’s properties worth Rs 172 crores.

The government has already instructed agencies to collect information about defaulters who fail to repay the loans. The money should be recovered through attachment and sale of their properties. cording to Credit Suisse.

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