President promulgates banking ordinance to regulate NPAs

President Pranab Mukherjee has promulgated an ordinance giving greater powers to the Reserve Bank to tackle the issue of mounting bad loans.

The presidential assent to the ordinance came on Friday afternoon.

On Wednesday, the Cabinet had approved promulgation of an ordinance to amend the Banking Regulation Act for resolution of the non-performing asset (NPA) crisis.

The amendments to the Act will help in effectively resolving the bad loans problem, Finance Secretary Ashok Lavasa said.

File photo: President Pranab Mukherjee.

File photo: President Pranab Mukherjee.

“It is not possible for me to put down a number on how this (NPAs) will go down, but certainly we feel that these changes will make the system more effective in handling the bad loans,” he told reporters here.

The Cabinet’s decision got a thumbs-up from the market as Bank Nifty rallied 1.85 per cent to close at 22,720.10.

“Banks are in a sweet spot due to a new framework to deal with NPAs and better quarterly results,” said Vinod Nair, Head of Research, Geojit Financial Services.

The secretary further said “we should be able to reach resolution in many of the cases” on the back of professionalism in the banking system and participation of promoters themselves.

He was confident that the amendments will allow regulator Reserve Bank and lenders to take effective steps to deal with the toxic assets.

Jaitley-Urijit-Patel-Sebi-RBIAfter discussions with stakeholders, the government felt that some changes were necessary in the statute book to take the problem head-on.

Lavasa, however, did not disclose the details of the proposed amendments.

He is of the view that there is enough appetite in the market to buy stressed assets.

“We should not judge the capacity that is there in the market because people do have appetite for investment in the Indian market. India is probably one of the best destinations for investment at this point of time,” he asserted.

Lavasa acknowledged that the NPA situation has not worsened in the recent past and there has been a marked improvement in some of the infrastructure sectors like power and road.