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The Banking Regulation Act 2017 was promulgated on May 4, 2017, to correct the banking sector’s current condition. The condition of Banking Companies (s) currently prevailing in the Indian Economy on account of Non-Performing assets is a well-known fact. This bill was promoted as a measure to curb all the current stress, difficulties, and hardships faced by the banking sector, especially in the case of public sector banks.
Public Sector Banks provide considerable loans to various corporate institutions in the hope of further expansions, which further default in the repayment of loans due to various reasons. This calls for regulatory action against the defaulters.
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The Banking Regulation (Amendment) Bill was passed in July 2014 to replace the Banking Regulation (Amendment) Ordinance 2017. The Bill inserted certain new provisions in the Banking Regulation Act of 1949. With these new provisions, it aims to empower the Reserve Bank of India to give directions to the banking company(s) to take strict action against corporate defaulter(s).
There were various reactions to the introduction of the bill. The opposition declared it a hopeless and desperate move on the part of the ruling government. Many economists consider it as not much beneficial for reviving the condition of the Banking Company(s).
The bill was passed to achieve the following objectives.
The following changes were introduced in the regulations:
Although the bill was promoted to correct the present scenario of the Banking Sector in the country, some major issues can be identified in the bill.
No doubt, the Bill gives power to banks to trigger actions in case of any corporate default, but they might face certain difficulties in initiating the proceeding. There are high chance that bankers might fall under political pressure if they try to initiate any proceedings against politically connected or otherwise powerful corporate defaulters.
Once the proceedings are initiated, the same will be followed by investigations by various investigating agencies such as the Central Vigilance Commission (CVC), Central Information Commission (CIC), CBI, or the Comptroller and Auditor General (CAG). Some bankers might restrain from taking any action due to fear of investigations and subsequent prosecution by the courts.
One major question this bill has raised is whether it is helpful enough to change the current scenario of the Banking Institutions. Will it be able to solve the problem of ongoing NPAs? Will it help prevent NPAs in the future? As already discussed, there might be fear on the part of bankers of being pressurized politically or being prosecuted by investigating agencies on the initiation of any insolvency resolution. Due to these reasons, Bankers may refuse to trigger any against defaulters. This way, the very purpose of the Banking Regulation Bill may fail.
The Banking Regulation Act 2017 aimed to address challenges like mounting NPAs, inadequate governance, and fraud in India’s banking sector. It empowered the RBI with additional supervisory authority, introduced Prompt Corrective Action (PCA) for early intervention, and established a comprehensive resolution mechanism to manage failing banks efficiently.
As the central banking institution, the RBI plays a crucial role in the Act. It is granted enhanced regulatory powers, allowing it to supervise and regulate banks more effectively. The RBI can promptly intervene in matters such as mergers, acquisitions, and resolution plans for stressed assets to maintain financial stability.
The Banking Regulation Act 2017 mandates stronger corporate governance standards for banks. It emphasizes the independence of boards, promotes risk management practices, and increases disclosure requirements. These measures aim to foster accountability and transparency in the banking sector.
The Act has contributed to increased financial stability by empowering the RBI to address issues at an early stage. With the introduction of the PCA framework and resolution mechanism, the Act has minimized risks and bolstered confidence among depositors and investors in the banking system.
The Act’s focus on strengthening the banking system has paved the way for healthy competition and innovation. New-age banks and financial institutions can now operate in a regulated environment with greater clarity, fostering a more dynamic and innovative sector.
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