The Narendra Modi-led government, notified the ordinance to amend the new Banking Regulation Act, empowering the RBI and banks to start off bankruptcy proceedings against persistent defaulters.

The Central Bank, as per the government’s notification, may order consent to the RBI to issue directions to any banking company to start insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016.

The Union Cabinet, earlier on Wednesday, approved an ordinance allowing RBI to deal with bad loans, on a case-to-case basis, as opposed to following a set of broad guidelines and rules for all the non-performing assets (NPAs).

The notification added that, “The RBI may specify one or more authorities or committees to advise banking companies on a resolution of stressed assets.” A strict ban on any new loans to willful defaulters, was also asked to impose by the RBI and the Government to all the banks. Such borrowers are also now barred from being appointed as directors on boards of companies. The new law may also thus empower banks to force waiving corporate loan defaulters to forego ownership and voting rights in their companies. This in turn will allow lenders to introduce new management leadership mandated to turn around these entities within a specified time frame.

Banks may also be allowed to separate the outstanding unpaid debts into sustainable and unsustainable parts, to better restructure loans, as per the fresh set of rules.

SUPRAJA