The Indian government has promulgated an ordinance empowering the Reserve Bank of India (RBI) to issue specific instructions to banks to act against defaulters and also initiate bankruptcy and insolvency proceedings under the law, while promising more steps to ensure that banks get cracking on tackling bad debt amounting to over £60 billion.
While details of additional steps would be announced shortly, finance minister Arun Jaitley told reporters that the new targets being fixed for the state-run lenders as part of the annual exercise would link additional equity support to immediate “cash release initiatives“ such as sale of assets, closure of non-profitable branches, reduction of overheads, steps to turn around the business and strengthening of credit appraisal process.
While some of the steps such as sale of non-core assets have been discussed in the past too, banks failed to have much headway. For the moment, the government has focused on the legal provisions through the Ordinance to let RBI to issue “directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default under the provisions of the Insolvency and Bankruptcy Code (IBC), 2016.”
The Ordinance also empowered RBI to set up sector oversight panels that would help shield bankers from possible action by investigative agencies looking into loan restructuring proposals. The fear of agencies such as CBI, Comptroller & Auditor General and the Central Vigilance Commission have been cited by bankers to hold back decisions.
