{"id":14640,"date":"2019-03-12T14:24:10","date_gmt":"2019-03-12T08:54:10","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=14640"},"modified":"2019-06-17T12:05:29","modified_gmt":"2019-06-17T06:35:29","slug":"banking-regulation-amendment-ordinance-2017","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/banking-regulation-amendment-ordinance-2017\/","title":{"rendered":"The Banking Regulation (Amendment) Ordinance, 2017 \u2013 a positive step for the banking industry \ufeff"},"content":{"rendered":"<p>In June 2017, the apex banking body in India &ndash; the Reserve Bank of India (RBI) &ndash; identified 12 loan defaulters. The total default value of these defaulters was almost 25% of the bad loans or Non-Performing Assets (NPA) in the banking industry in the country. In this article, we will discuss The Banking Regulation (<a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Amendment&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;An &amp;quot;amendment&amp;quot; refers to the formal change or correction of a legal document, often involving additions, variations, or deletions to address irregularities or clarify points in an agreement.(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/amendment\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>Amendment<\/a>) Ordinance, 2017 &ndash; a positive step for the banking industry .<\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>\n  Non-Performing Assets of public\n  sector Banks during the time\n  <\/td><td>\n  Rs. 6.64 lakh crore\n  <\/td><\/tr><tr><td>\n  Total Stressed Assets of Banks\n  during the time (public + private sector)\n  <\/td><td>\n  Rs. 8.02 lakh crore\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What is\nNPA?<\/strong><\/h2>\n\n\n\n<p>These are loans or advances where\nthe borrowers have not been able to pay either the principal or the interest in\na period of 90 days from the stipulated time period.&nbsp; <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Which are\nthe industrial sectors that had the NPAs predominantly?<\/strong><\/h2>\n\n\n\n<ul><li>Steel<\/li><li>Infrastructure<\/li><li>Power<\/li><li>Textiles<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>How did the\nnationalized banks come into the picture?<\/strong><\/h2>\n\n\n\n<p>Public sector or nationalized banks\nturned out to the biggest lenders to the large industrial and infrastructure\nprojects that had the promise of becoming big-time hits and do considerably\nwell in the future with expansion plans.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What was\nthe need of the Ordinance?<\/strong><\/h2>\n\n\n\n<p>As per the ruling government, the Ordinance should have been\npassed a long time back. The requirement\nwas critical now because banks were facing a fund\nshortage situation because of the non-performing assets, bad loans, and stressed assets. Despite concerted efforts\nby the banking industry and the government, the situation seemed to be going\nout of hand. <\/p>\n\n\n\n<p>While initially the reason behind\nthe stuck-up situation was attributed to issues with the availability of raw materials for mega projects\nand land\nacquisition hassles, later the problem magnified to insurmountable limits. Part\nof the problem was also that the banking industry was giving loans without\nadequate checks in the last decade.&nbsp; The\nbanks were lending huge amounts without even safeguarding their interests and\nhaving proper laid down repayment plans from the borrower. <\/p>\n\n\n\n<p>As a result, in the next few years,\nthe situation started to limit their capacity or rather choke them of funds to\ngive further loans to small creditors and that in turn started to affect the\noverall economy of the country. Even with many schemes the RBI introduced, the\ntoxic debt situation seemed far from being resolved which prompted the central\ngovernment to step in and give additional powers to the apex bank to help the banking\nindustry especially the multiple banking consortiums to resolve the NPA and\nstressed assets situation. Hence it was essential that the apex bank is given the right to intervene and resolve the\nsituation. <\/p>\n\n\n\n<p>As per the Finance Minister, Mr.\nArun Jaitley, even getting 40-50 of the major corporate borrowers to pay up the\ndefaulted principal or interest amount was enough to resolve the financial\ncrisis on an immediate <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Basis&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;In finance, the &amp;quot;basis&amp;quot; is a term with several applications, including representing the difference between the spot price and the future contract price of an asset, which is vital in investment(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/basis\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>basis<\/a>.<\/p>\n\n\n\n<p>Data available from the Financial\nStability Report 2016 issued by RBI states that: <\/p>\n\n\n\n<ul><li>Mega\nor large borrowers &ndash; defined by the RBI as debtors who have exposure exceeding\nRs. 5 crore or more for lenders &ndash; account for almost 56% of the banking\nindustry debt and 88% of the banks&rsquo; Non &ndash;Performing Assets.<\/li><li>It\nalso mentioned that such large borrowers\nor defaulters were about 50 in number.<\/li><\/ul>\n\n\n\n<p>The Credit Suisse estimated that\nalmost 40% of the debtors are companies that have an interest coverage ratio of\nless than 1. <\/p>\n\n\n\n<p>It is interesting to note that when\nthe amendment was announced as the Bill was introduced in the Parliament, the\n<a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Market&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;A market is a structured environment, either physical or virtual, where buyers and sellers convene to trade goods and services. This trading hub operates based on the principles of supply and(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/market\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>market<\/a> and the industry welcomed it with open hands so much so that bank shares\ngained as much as 6% immediately on the opening\nof trading on the day of the announcement.\n<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What are\nStressed Assets? <\/strong><\/h2>\n\n\n\n<p>These are primarily loan accounts\nwhere the borrower has either defaulted in terms of repayment of the loan or\nthe schedule of repayment had to be reworked out because of the inability of\nthe borrower to pay.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What are\nthe details of the Ordinance?<\/strong><\/h2>\n\n\n\n<ol><li>The Banking Regulation\n(Amendment) Ordinance, 2017 was promulgated on 4<sup>th<\/sup> May 2017 by the\nPresident of India.<\/li><li>By virtue of the Banking\nRegulation (Amendment) Ordinance, 2017, a provision related to the handling of Stressed Assets was inserted in the\nBanking Regulation Act, 1949.<\/li><li>Two new sections (35AA\nand 35AB) were introduced in the Banking Regulation (Amendment) Ordinance,\n2017.<\/li><li>Under Section 35A of the\nBanking Regulation Act, 1949, the central government has the powers to\nauthorize the RBI to issue required directions to any bank (company or companies)\nto resolve their stressed assets and start with an insolvency resolution\nprocess against the defaulter under the Insolvency and Bankruptcy Code, 2016.<\/li><li>Further, the RBI can, from time\nto time, issue directive to any bank (company or companies) to resolve their\nStressed Assets. <\/li><li>The RBI also has the\npower to specify certain authorities or form committees to advise the banks in\nthe context of the resolution of such\nstressed assets. Such authorities or committee may be appointed by RBI or it\nneeds to approve the said appointments.<\/li><li>All these provisions are\napplicable to the State Bank of India too along with its subsidiaries. The\nprovisions of the Ordinance are applicable to the Regional Rural Banks (RRBs)\ntoo.<\/li><li>The Banking Regulation\n(Amendment) Ordinance, 2017bill\nafter being introduced in the Parliament (Lok Sabha approved of it much before\nthe Rajya Sabha) was finally passed on 24<sup>th\n<\/sup>July 2017 after much debate and discussion. <\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What happened after the Ordinance came into force?Banking Regulation What happened after the Ordinance came into force?<\/strong><\/h2>\n\n\n\n<ol><li>The Overseeing Committee (OC) was brought under the supervision and aegis of the Reserve Bank of India. The number of members was increased to 5. The main responsibility of the OC is to reassess cases and help in the faster resolution of such cases where the aggregate exposure of banks to borrowers exceeds Rs. 500 crores.<\/li><li>After the Ordinance came into action, the RBI instructed the concerned banks to initiate proceedings of insolvency and bankruptcy against the 12 major defaulters. <\/li><li>An Internal Advisory Committee also called the IAC was formed by the RBI for referring accounts for resolution under the <a href=\"https:\/\/enterslice.com\/learning\/insolvency-and-bankruptcy-board-of-india\/\" target=\"_blank\" rel=\"noopener noreferrer\">Insolvency and Bankruptcy Code<\/a>, 2016 (IBC). The IAC is responsible for recommending for such insolvency and bankruptcy cases that have fund and non-fund based outstanding exceeding Rs. 5000 crores. Of this amount, 60% or more had to be termed as non-performing by banks as of 31<sup>st<\/sup> March 2016. <\/li><li>Some of the big defaulters which had more than Rs. 5000 crore outstanding loans with banks were &ndash;<\/li><li>Essar Steel<\/li><li>Bhushan Steel<\/li><li>ABG Shipyard<\/li><li>Electrosteel<\/li><li>Alok Industries<\/li><li>For NPCs that did not feature under the above-mentioned criteria, the IAC instructed the concerned banks to sit with their large defaulters and come up with a settlement or a resolution plan within the next six months. <\/li><li>The resolution plan could be either restructuring of the loan or liquidating the assets of the borrower.<\/li><li>However, if within this period of six months the resolution plan could not be drawn then banks were instructed to file for insolvency proceedings under the Insolvency and Bankruptcy Code, 2016<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Conclusion<\/strong><\/h2>\n\n\n\n<p>The Ordinance has been welcomed by the banking industry especially as it is seen as a progressive step. The new Ordinance empowers <a href=\"https:\/\/www.rbi.org.in\/\" rel=\"nofollow noopener noreferrer\" target=\"_blank\">RBI <\/a>to protect banks from vigilance authorities posing probing questions though it cannot as such protect the banks from being questioned by these vigilance authorities. <\/p>\n","protected":false},"excerpt":{"rendered":"<p>In June 2017, the apex banking body in India &ndash; the Reserve Bank of India (RBI) &ndash; identified 12 loan defaulters. The total default value of these defaulters was almost 25% of the bad loans or Non-Performing Assets (NPA) in the banking industry in the country. In this article, we will discuss The Banking Regulation [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":14645,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1331],"tags":[2477],"acf":{"service_id":"218"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Banking Regulation (Amendment) Ordinance, 2017<\/title>\n<meta name=\"description\" content=\"Banking Regulation (Amendment) Ordinance, 2017, a provision related to the handling of Stressed Assets was inserted in the Banking Regulation Act, 1949.\" \/>\n<meta name=\"robots\" content=\"index, follow\" \/>\n<meta name=\"googlebot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta name=\"bingbot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/enterslice.com\/learning\/banking-regulation-amendment-ordinance-2017\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Banking Regulation (Amendment) Ordinance, 2017\" \/>\n<meta property=\"og:description\" content=\"Banking Regulation (Amendment) Ordinance, 2017, a provision related to the handling of Stressed Assets was inserted in the Banking Regulation Act, 1949.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/enterslice.com\/learning\/banking-regulation-amendment-ordinance-2017\/\" \/>\n<meta property=\"og:site_name\" content=\"Enterslice\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/enterslice\" \/>\n<meta property=\"article:author\" content=\"enterslice\" \/>\n<meta property=\"article:published_time\" content=\"2019-03-12T08:54:10+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2019-06-17T06:35:29+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/03\/banking-regulations.png\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"700\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:creator\" content=\"@enterslice\" \/>\n<meta name=\"twitter:site\" content=\"@enterslice\" \/>\n<!-- \/ Yoast SEO plugin. -->","authorName":"Narendra Kumar","authorImageUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/04\/nk-1.jpg","authorDescription":"Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.","postViews":521,"readingTime":5,"nextPost":{"id":14648,"slug":"bureau-of-indian-standards-certification-issuing-responsibilities"},"prevPost":{"id":14600,"slug":"amendment-rules-significant-beneficial-ownership"},"featuredMediaUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/03\/banking-regulations.png","postTerms":"RBI Registration","_links":{"self":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/14640"}],"collection":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/comments?post=14640"}],"version-history":[{"count":0,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/14640\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media\/14645"}],"wp:attachment":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media?parent=14640"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/categories?post=14640"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/tags?post=14640"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}