RBI outlines NPA plan; expand Oversight Committee, Also involve Rating Agencies

Reserve Bank of India (RBI) take another measure in its fight against the growing threat of non-performing assets (NPA) in the banking sector by revealing the actions it will take to kerb the bad loans that stood at Rs 9.64 trillion at the end of 2016. This move comes three weeks after the Indian government brought an ordinance to give increased powers to the RBI to deal with NPAs more effectively.

RBI will expand the oversight committee (OC) and its authority, modify the existing rules for debt restructuring and engage rating agencies for a timely action. The central bank will reconstitute the OC and expand the panel to include more members. The existing OC, which has two members, was constituted by the Indian Banks’ Association. Now RBI will reconstitute the OC under its supervision while the two current members will continue in the revamped panel as well. The larger OC will be able to set up benches to deal with the volume of cases referred.

“It has been decided to reconstitute the OC under the aegis of the Reserve Bank and also enlarge it to include more members so that the OC can constitute requisite benches to deal with the volume of cases referred to it,” the RBI said in a statement.

RBI will also expand the scope of cases that can be referred to the OC beyond those under the Scheme for Sustainable Structuring of Stressed Assets (S4A). The central bank is also developing a framework for an “objective and consistent” decision-making process for resolution under the Insolvency and Bankruptcy Code, 2016.

The apex bank said it has already sought information on the current status of the large stressed assets from the banks. “The RBI would also be constituting a committee comprised majority of its independent board members to advise it in this matter,” it added.

RBI said it envisages an important role for the credit rating agencies “in the scheme of things.”

With a view to preventing rating-shopping or any conflict of interest, RBI is exploring the feasibility of rating assignments being determined by the RBI itself and would be paid for from a fund to be created out of contribution from the banks and the Reserve Bank.

Moreover, the proper exercise of the enhanced empowerment would require coordination with and cooperation from several stakeholders including banks, rating agencies and asset reconstruction companies (ARCs), among others, the RBI added.

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