Page 36 - Banking Finance September 2018

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on Large Credits (CRILC). This will facilitate assessment of 4.It was passed to deal with stressed assets, particularly
aggregate borrowing by corporate groups, and monitoring those in consortium or multiple banking arrangements. The
of the financial profile of an entity/group. This requirement ordinance enables the Union government to authorise the
will be implemented in a calibrated, but time-bound manner. Reserve Bank of India (RBI) to direct banking companies to
To start with it will be now mandatory for credit limits of resolve the issues related to specific stressed assets, by
Rs.50 crore and above. initiating insolvency resolution process wherever required.

Sale of Stressed Assets by Banks: The government has introduced two new provisions - Sections
Given the continuous rise of stressed assets in the banking 35A and 35AB, under Section 35A of the Banking Regulation
system, accompanied with a low volume of sale of such assets of Act of 1949 through which banking companies can initiate
by banks to asset reconstructions companies (ARCs) / non- insolvency proceedings. The RBI has also been empowered
banking financial companies (NBFCs) / financial institutions (FIs), to issue other directions for resolution, and appoint or
the Reserve Bank of India on 1 September 2016 has announced approve for appointment, authorities or committees to advise
new guidelines regulating sale of stressed assets, with the intent banking companies for stressed asset resolution.
of incentivising more proactive sales (Guidelines).
Time-bound resolution
This has a significant impact on the manner in which banks The recent enactment of Insolvency and Bankruptcy Code
as sellers and ARCs / NBFCs / FIs as buyers will now transact (IBC), 2016 has opened up new possibilities for time-bound
in this asset class and will require them to recalibrate their resolution of issues related to stress assets. The IBC was
approach towards selling and acquiring interests in enacted to consolidate and amend the laws relating to re-
distressed portfolios. Banks will now have to put in place organisation and insolvency of corporate persons,
detailed internal policies for disposal of stressed assets and partnership firms and individuals in a time-bound manner
(at the very least) on an annual basis, identify and prepare for maximisation of the value of assets in order to promote
a board approved list of stressed loans which need to be sold entrepreneurship, availability of credit and balance of
in the relevant financial year. Banks also need to lay down interest of stakeholders.
the norms for sale and most importantly, delegate powers
to managers to consummate such sale. In relation to assets The banking ordinance is meant to firm up the IBC and is
held by banks under the doubtful category, the board (or meant to join forces with the Securitisation and
committee) of such bank would be required to document Reconstruction of Financial Assets and Enforcement of
its views on exit or retention, on a periodic basis. Security Interest Act, 2002 (SARFAESI) and Debt Recovery
Acts, which have been amended to facilitate recoveries. The
The Banking Regulation (Amendment) comprehensive approach is part of the effective
Ordinance: implementation of various schemes through resolution or
problems related to stress assets.
To combat stressed assets, the government promulgated the
Banking Regulation (Amendment) Ordinance, 2017 on May
Conclusion
This is just the new beginning of resolution process which
will take its full form with time to make a radical change in
the banking environment. All the stake holders are seriously
affected by the growing stress assets in our banking sectors.
A serious thought by the regulator and Government has
enabled to bring new tools to tackle the situation with
gravity. We are quite hopeful of change of situation that will
bring back the banking to its real track of progressive lending
for growth of individual and economy, which will in turn
make the bank most profitable as the earlier days.

36 | 2018 | SEPTEMBER | BANKING FINANCE