Even as the government awaited the Presidential asset to an ordinance to amend the Banking Regulation Act approved by the Cabinet on Wednesday, Finance Secretary Ashok Lavasa was confident that it would resolve the vexing issue of banks' non-performing assets (NPAs) that have gone bad.
“We are hopeful the resolution of bad loans would begin after the proposed amendment,” he told reporters on Thursday.
The ordinance is said to prepare grounds for tough action against chronic defaulters by giving the banking regulator the freedom to deal with each case of default singly, instead of applying a single decision or guideline for all loans that have turned NPAs gone bad.
Effectively, it will give freedom to banks to decide who the wilfull defaulters are, and who were victims of circumstances.
Equally, the ordinance is said to buffer banks and banking officials from the fallout of their decisions of awarding loans going wrong.
But neither Finance Minister Arun Jaitely who made the announcement of the cabinet clearance of the Ordinance on Wednesday, nor Lavasa shared details of the road map to the solution of NPAs.
“It was felt that there are some amendments which are required, which will enable everybody in the system, the banks and the regulator, to take effective steps in dealing with bad loans” Lavasa told reporters.
The quantum of NPAs gone bad is estimated at about Rs 7 lakh crores. Apart from clogging the banking system, the defaulters have largely not been able to avail of fresh credit to infuse energy into their enterprises. The amendment ordinance is thus, seen as a solution to the “twin balance sheets problem”.
