NPA Rules - Business Loan, npa, Npa finance, Npa Account, Sarfaesi, Drt, Nclt

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NPA Rules

In the wake of the latest government package to check the rise of defaulted loan accounts in the banking sector, the Bankers and financial experts are expecting new measures including strengthening of the 'Oversight Committee' to break the deadlock in loan recasts, sale of stressed assets to other state-owned firms and bringing recast decisions outside the purview of investigative agencies,

RBI will be empowered to take more effective decisions after the President signs the ordinance to amend Section 35A of the Banking Regulation Act is expected to step in and announce a series of measures to resolve the issue. Currently, the RBI is empowered “to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply…”

This will break the deadlock as banks are not taking decisions now. Banks were not ready to agree for big haircut till now. This will free bank management from the purview of investigative agencies.

New NPA package for banks makes RBI more powerful; it's a move in the right direction.  The NPA Resolution is vital for the future of the banking system in India.



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The NPA volume of Rs 7 lakh crore as of December is alarming and reveals how ruthlessly the top Banking administrators are  handling this issue.  
The recent Cabinet approval of the NPA package has hence been seen as a new hope in resolving this problem.  The details are not made public, but it appears that the Oversight Committee (OC) of the RBI will have a decisive say in the resolution of debt.
Presently there is a S4A scheme which is an acronym for Scheme for Sustainable Structuring of Stressed Assets. Under S4A, banks can work out the best mode for resolving the NPA by bifurcating between the sustainable and unsustainable part of the non-performing asset.  The latter can be converted into equity or equity-linked instruments provided at least half of the debt is sustainable which is serviced with present cash flows.
The OC is to supervise these transactions to ensure that they are transparent and that all stakeholders are protected.
Prima facie, the ordinance which is to be passed to change the Banking Regulation Act will provide teeth to OC making RBI a powerful as Banking Regulator.  For the indecisive bankers, this is a blessing as the fear of taking a decision on NPAs is being passed on to the RBI. Currently bankers do fear that if they do go in for a high hair-cut there can be all the Investigating Agencies may question their integrity. By having the RBI as approver to such transactions, this psychological fear of Bank Officers in decision making can be set aside.
 
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