According to the Reserve Bank of India (RBI), in the recent times, the amount of stressed (non-performing, restructured or written-off) assets in the banking system has been significantly high. Stressed assets are loans where the borrower has defaulted on repayment, or are loans which have been restructured. A Report of Credit Rating Information Services of India Limited (CRISIL) has stated that the stressed companies are largely from the metals, construction and power industries and they account for nearly half of the total non-performing assets (NPAs) in the banking sector as in the end of March 2017. Also, that the total non-performing loans in the banking system amounted to Rs. 7.29 lakh crore (approx.), or 5 percent of India’s gross domestic product, as in the end-March 2017. This has resulted in reduced profits to lenders, slow credit flow to industry, etc.
Therefore, the Government of India has taken the following initiatives to resolve the menace of stressed assets in the economy:
1. The RBI’s internal advisory committee has identified 12 large stressed cases for proceedings under the Insolvency and Bankruptcy Code 2016, of which the National Company Law Tribunal (NCLT) has already admitted bankruptcy proceedings against five such companies.
2. The Government has introduced the Banking Regulation (Amendment) Bill, 2017 in the Lok Sabha which will empower the RBI to tackle the situation of mounting bad loans and stressed assets that have clogged the banking system.
3. By virtue of this Bill, the RBI may be empowered in the following manner:
i) The RBI may direct a banking company to initiate insolvency proceedings against companies having stressed assets and give directions to the banks for its timely resolution.
ii) The RBI may monitor bank accounts of big defaulters of loans. The Government may direct the RBI to carry out inspection of lenders.
iii) A committee may be set up to oversee companies that have been the biggest defaulters of loans so that a bank may be barred from extending loans to such defaulting persons, in order to curb NPAs.
iv) Various schemes were introduced by the RBI such as corporate debt restructuring, formation of joint lenders’ forum, flexible structuring for long-term project loans to infrastructure, strategic debt restructuring scheme and sustainable structuring of stressed assets to check the menace of NPAs.
v) The Government and the RBI may also come up with a one-time settlement scheme for top defaulters before initiating stringent steps against them.
vi) The RBI is planning to set up a ‘bad bank’ and has also floated two models, i.e. Private Asset Management Company (PAMC) and National Asset Management Company (NAMC) for the orderly resolution of stressed assets.
Thus, the Government has been taking such initiatives to address the issue of stressed assets created in the banking sector of India.