Amendment of Banking Regulation Act, 1949

  • President Pranab Mukherjee approved an ordinance to amend the Banking Regulation Act, 1949 to give more powers to the Reserve Bank of India to take action against defaulters to solve the NPA crisis. The ordinance gives the RBI powers to
  • issue directions to any bank to initiate insolvency resolution process in case of default,
  • issue directions to the banking companies for resolution of stressed assets and,
  • specify one or more authority or committee that will advise banks on how to resolve their stressed assets.

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Joint Lender’s forum

  • RBI’s joint lenders’ forum (JLF) guidelines came into effect in 2014 after the central bank put a new framework in place to tackle stressed assets.
  • JLFs were intended to recognize stressed assets early and come up with a corrective action plan (CAP) within 45 days.
  • Upon agreement by a minimum of 75% of lenders by value and 60% of the lenders by number restructuring of the account may be carried out under the Corporate Debt Restructuring (CDR) Mechanism.
  • RBI has asked banks to set up an empowered group (JLF-EG) which will be tasked to approve the restructuring package.
  • Banks will have to implement the plan agreed upon without any additional conditions and there would be a monetary penalty on those who veer away from the decision.
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