NPA menace: Govt to push banking regulation Bill in Monsoon session

Besides, it is working on the Banning of Unregulated Deposit Schemes and Protection of Depositors Interests Bill.

The Department of Financial Services (DFS) is preparing a draft Bill in this regard and will shortly approach the Cabinet for its nod, a government official said.

The proposed legislation seeks to provide a comprehensive code to ban unregulated deposit schemes and protect interests of depositors.

The Bill stipulates that any deposit taker who promotes and accepts deposits in an unregulated deposit scheme may be punishable with imprisonment for a minimum term of two years, which may be extended to 10 years, and with a fine which may extend to twice the amount of aggregate funds collected from subscribers, members or participants in such schemes or arrangements.

The Monsoon Session of Parliament begins next week on July 17 and closes on August 11.

By all accounts, the most important legislative business of the session is going to be the replacement of the Banking Regulation (Amendment) Ordinance, 2017, with an Act.

The government in May promulgated an ordinance authorising the Reserve Bank to issue directions to banks to initiate insolvency resolution process in case of loan default.

Non-performing assets (NPAs) or bad loans of public sector banks (PSBs) have reached "unacceptably high levels" of over Rs 8 lakh crore, the bulk of which are in sectors such as power, steel, road infrastructure and textiles.

The ordinance amended the Section 35A of the Banking Regulation Act, 1949. It has inserted Section 35AA and Section 35 AB in the Act.

At the same time, repeal of the State Bank of India (Subsidiary Banks) Act, 1959, has been necessitated because of merger of five associates with SBI, the official added.

Five associates and the Bharatiya Mahila Bank became part of State Bank of India (SBI) beginning April 1, catapulting the country's largest lender to among the top 50 banks in the world.

Next in the queue is the National Bank for Agriculture and Rural Development (Amendment) Bill, 2017, that was introduced by Finance Minister Arun Jaitley in the Lok Sabha in the Budget Session. The Bill seeks to amend the National Bank for Agriculture and Rural Development Act, 1981. As per the statement of objects and reasons, the Bill proposes to empower the central government to increase authorised capital of the National Bank for Agriculture and Rural Development (Nabard) to Rs 30,000 crore, from Rs 5,000 crore.

Besides, it would allow the transfer of RBI's balance equity of Rs 22 crore in the bank to the central government.

Former RBI Governor C Rangarajan on Tuesday said bank merger should be need-based and the initiative should come from the lenders themselves.

"Initiative for merger should come from banks themselves and there must be felt a need for it. Therefore, the world over, the larger banks are coming into cooperation," he said.

Recently, the State Bank Of India merged five associates with itself and the government is looking to consolidate few more with the objective of creating five global-sized lenders.

Five associates and the Bharatiya Mahila Bank became part of the State Bank of India (SBI) beginning April 1 this year, catapulting the country's largest lender to among the top 50 banks in the world.

On NPA resolution, he said, the clean-up exercise has to be done and some 'haircut' is inevitable.

Rangarajan was speaking to reporters here on Tuesday on the sidelines of a NABARD event.

"With the haircut, loans should become performing. Some adjustment is needed. After all, we have always done one-time adjust in the past. The size of NPAs has become big so this step is required. Without finding solution to NPA, we will not be able to move forward in terms of stimulating economy and investment," he said.

Rangarajan said the NPA resolution process would take at least a year to complete.

Last month, the RBI identified 12 accounts for insolvency proceedings with each of them having over Rs 5,000 crore of outstanding loans, accounting to 25 per cent of the total NPAs of banks.

These 12 accounts would qualify for immediate reference under the Insolvency and Bankruptcy Code (IBC), the RBI said.

The banking sector is saddled with non-performing assets (NPAs) of over Rs 8 lakh crore, of which Rs 6 lakh crore is with public sector banks (PSBs).