Arun Jaitley said they will empower the RBI in relation to non-performing assets under Bankruptcy Code.
The ordinance on tackling the huge loan default problem will empower the Reserve Bank of India (RBI) to direct banks to initiate the insolvency process against defaulters as the status quo cannot continue and the paralysis in the name of autonomy should be broken, Finance Minister Arun Jaitley said in New Delhi on Friday.
Briefing the media on the ordinance that was signed by President Pranab Mukherjee on Thursday night, Mr Jaitley said they will empower the RBI in relation to specific non-performing stressed assets under the Bankruptcy and Insolvency Code.
"One of the key problems of the banks is the problem of assets. Banks need to be robust to ensure growth if the banks have unacceptably high non-performing assets (NPAs) that hinders their capacity. In order to empower the RBI further in this effort the Cabinet on Wednesday recommended to the President to issue an ordinance. It was signed late last night by the President and notified today morning," Mr Jaitley said.
He also disclosed that general authorisation empowering the RBI with the policy statement has been issued separately.
The Finance Minsiter also made it clear that the RBI's steps under the ordinance will be binding on all. One of the objects will also be that bankers take commercial decisions and have sufficient "comfort level".
He referred to moves to amend the Prevention of Corruption Act to strengthen the banks decision-making capacity, adding that it was being considered by a Parliamentary Committee.
To a question about details of the specific loan defaulters proposed to be acted against, the finance minister asked the media to wait, adding he would not like to go into it now.
"There is a list of some stressed assets. The RBI is looking into it. I would not like to get into it. The objective of the ordinance is that the present status quo cannot continue. The paralysis in the name of autonomy is detrimental and that needs to be broken. The ordinance is the legitimate power to ensure this," he said.
Mr Jaitley said the resolution of the NPAs problem is to ensure the health of the banking system.
The insertion of sections 35AA and 35AB will ensure that the power of initiating the insolvency proceedings under the Insolvency and Bankruptcy Code and will remain with the RBI.
The RBI will be empowered to intervene in specific cases to resolve the NPAs and to bring them to a definitive conclusion.
He said the RBI had already powers under the Bankruptcy Code that was enacted in 2016. Along with this, two other laws - Sarfaesi Act and DRT Act - enabled the RBI to exercise powers coupled with actions through the joint lenders' forum.
There have been other reforms but one of the key problems that remained was of stressed assets.
The new provisions also empower the RBI to form oversight committees in relation to specific stressed assets.