♤ Banking regulation ordinance 2017 -

For borrowers

♤ Insolvency and bankruptcy code – It will reduce the delay in resolution of insolvency or bankruptcy cases and improving recoveries of the amount lent. Thus, it will help in facilitating the efficient flow of capital across the economy. It will streamline the process which is otherwise regulated by multiple laws such as the Companies Act, SARFAESI Act, Sick Industrial Companies Act.

♤ Salient Features of the law :

o It Fixed a timeline of 180 days, extendable by another 90 days, to resolve cases of insolvency or bankruptcy.

o A new regulator — The Insolvency and Bankruptcy Board of India (IBBI) to regulate professionals/agencies dealing with insolvency and informational utilities.

o National Company Law Tribunal (NCLT) to adjudicate bankruptcy cases over companies, limited liability entities while Debt Recovery Tribunal (DRT) to adjudicate cases over individuals and unlimited liability partnership firms.

♤ Formation of bad bank – A separate entity that would buy the NPAs and work towards suitably disposing off freeing up banks books for fresh lending. It has been successfully implemented in many western European countries post the 2007 financial crisis France etc. However, in case of India certain issues need to be taken care of such as majority stakes with government may render the Bad Bank facing same issues of governance and capitalization as PSBs

2.6.5. Issues Needing Further Intervention

♤ Effective exit policy – For accounts which are beyond revival, banks should have a well - defined loan recovery policy which sets down the manner of recovery of dues depending upon the circumstances of each account. Banks may resort to either opt for legal avenues or non-legal avenues for exiting the account.

♤ Judicial delays - An important factor affecting recovery performance of SCs/RCs is the delay in judicial process: be it under SARFAESI Act or at the level of debt recovery tribunals. A fast and efficient judicial system is a sine qua non for effective resolution of NPAs.

♤ Low recovery performance - On the recovery side, the performance is not very encouraging. As on March 31, 2015, the average recovery rate (assets resolved as a per cent to assets acquired) of SCs/RCs was at 31.0 per cent.

♤ Non-transparent auction process by banks for the sale of NPAs to ARCs - The RBI has also advised that the banks using auction process for sale of NPAs to ARCs should be more transparent

♤ Banks possessing small share in loan forming JLF – reluctant to do independent analysis, often goes by what the largest shareholder is saying. It may not have enough in-house capability for independent analysis and even if it does have, its say will be minute considering the size of shares it owns

♤ Pricing of NPAs - Investors in stressed asset portfolios expect high returns, based on high- risk, high-reward principle which SCs/RCs find impossible to offer if the assets being acquired are not realistically priced.

♤ Transparency in official numbers - a clear and transparent assessment and communication of the problem. Official numbers on non-performing assets are being questioned by an increasing number of observers; this is a clear manifestation of distrust.

♤ Infuse more capital into banks, even if it is based on performance, is a hugely risky move without full transparency. Apparently well-performing banks may suddenly show themselves to be worse than reported. Any move to re-capitalise the banks should only be made once full transparency is achieved

♤ Improving management and governance of banks - there is no action on the recommendations of the committee chaired by P J Nayak, which call for much more fundamental governance reforms.

♤ Decentralised decision making from government to PSB boards - Rajan said. He said more decisions need to be decentralised from the government to the PSB boards, once they have been fully professionalised.

♤ asset reconstruction company (ARC) - The Union finance ministry and the Niti Aayog have recommended that the government set up an asset reconstruction company (ARC) and transfer troubled assets of the banking sector to its books. This will clean up the balance sheets of banks.