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.