Ordinance on New NPA Resolution Policy - an Overview

Gross Non- Performing Assets (NPAs) of just 37 listed banks were as high as Rs. 7.1 lakh crores as at March end, 2017 as against Rs. 5.7 lakh crores in the last year (1). About 50 top stressed corporate accounts have been identified by Reserve Bank of India (RBI) as being under the watch list of the Government. The total loan amount due from these top stressed assets is around Rs. 4.5 lakh crore which is almost 85 percent of the total bad loans of public sector banks (PSBs). Hence, both RBI and Government have taken several measures since 2002, starting with setting up of Asset Reconstruction Companies (ARCs) for purchase of bad loans, making amendments in Corporate Debt Restructuring(CDR) mechanism after accepting recommendations of the Mahapatra Working Group, installing a framework for monitoring of Special Mention Accounts (SMAs), coming out with Flexible Restructuring of Long Term Project (5/25) scheme, introducing Special Debt Restructuring (SDR) scheme, initiating Scheme for Sustainable Structuring of Stressed Assets (s4a), enacting Insolvency Bankruptcy Code (IBC) etc. Despite these and many other measures, the level of NPAs is now unprecedented. Appreciating this growing concern of banks, the Government has now come out with an Ordinance on NPA Policy Resolution which seems to be an effective tool by granting more powers to RBI and also building up confidence in the minds of bankers in taking decisions on huge write off/write downs as part of resolution of mega problematic projects. Although this is considered to be a one time exercise to resolve mega top stressed loan assets, the Ordinance is expected to create a conducive environment for further lending to other corporate and infrastructure projects. In view of the new era to begin with the introduction of Ordinance, it is necessary for bankers at this stage to develop a fair understanding of the new Ordinance by going through its historical background, initiatives taken by RBI and Government during the recent past, features and likely impact of the ordinance. Towards this end, the present article makes an overview and offers suggestions for effective implementation of the Ordinance. To begin with, let us study the need for introduction of Ordinance.