Industry Overview

The NPAs of the banking system has been growing exponentially. The level of NPAs is estimated at Rs.7.7 lakh Crore as on March, 2017. Concerned with the alarming growth of NPAs, the Govt. of India has introduced Banking (Regulation) Amendment Bill, 2017 which has been passed by both the houses of Parliament on August 10, 2017. The highlights of the Bill are

Initiating insolvency proceedings: The Central Government may authorise the Reserve Bank of India (RBI) to issue directions to banks for initiating proceedings in case of a default in loan repayment. These proceedings would be under the Insolvency and Bankruptcy Code, 2016.
Issuing directions on stressed assets: The RBI may, from time to time, issue directions to banks for resolution of stressed assets.
Committee to advice banks: The RBI may specify authorities or committees to advise banks on resolution of stressed assets. The members on such committees will be appointed or approved by the RBI.

The intervention of RBI and resolution strategy having approval of National Company Law Tribunal (NCLT) would help the banks to clean their Balance Sheets within a stipulated time frame.

RBI has also tightened the provisioning norms in respect of advances referred to NCLT. Banks have been directed to set aside 50% of the loan amount as likely losses for all cases referred to the NCLT and 100% in those cases that fail to get resolved under the insolvency proceedings and instead are forced into liquidation.

In a meeting held in July 2017, the Ministry of Finance has reiterated the significant role to be played by the PE firms and ARCs in the process of cleaning the books of the banks.

The operating environment is now more conducive for ARCs for an effective role play as an institutional mechanism to address the growing NPAs of the banking system.