RBI unleashes powers from NPA ordinance, to expand oversight panel

It also plans to form a separate panel to advise it on the issue of the banking sector’s large stressed assets, an updated statue on which has been sought from the banks, the RBI said

The Reserve Bank of India on Monday outlined steps it plans to take to implement the Banking Regulation (Amendment) Ordinance, 2017, which includes a possibility of the central bank itself assigning agencies to rate banks' debts to prevent "rating-shopping".

"...with a view to preventing rating-shopping or any conflict of interest, (the RBI) is exploring the feasibility of rating assignments being determined by the Reserve Bank itself and paid for from a fund to be created out of contribution from the banks and the Reserve Bank," the central bank said in a statement.

"Rating shopping" refers to a situation where a debt issuer picks a rating agency which will assign the highest rating to its debt, or has the least stringent criteria for a particular rating. Some of the other measures which the RBI plans to take include the reconstitution of the Oversight Committee, albeit on a more expansive scale as well as scope. In June, the RBI had announced a Scheme for Sustainable Structuring of Stressed Assets, or S4A. As part of the scheme, a twomember overseeing committee, set up by the Indian Banks Association in consultation with the RBI, would review the resolution plans of banks, a consortium of banks, or a Joint Lenders' Forum.

Today, the RBI said it planned to add more members to the revamped committee, and would also widen the scope of cases that can be referred to it.The reconstitution of the Oversight Committee will be done under the aegis of the RBI. The increase in its members -- whose names will be announced soon -will allow it to constitute requisite benches to deal with the volume of cases referred to it.

Apart from a larger Oversight Committee, the RBI also plans to form a separate panel to advise it on the issue of the banking sector's large stressed assets, an updated status on which has been sought from banks. The committee will largely comprise of the independent members of the RBI's own board. The RBI is also working on a framework which will provide clear and consistent guidelines in determining which cases will be referred under the Insolvency and Bankruptcy Code, 2016, for resolution.The RBI's decision to form a committee to advise it on large stressed assets, as well as widen the scope and scale of the Oversight Committee, follows directly from the changes made to the Banking Regulation Act by the government. Notified on May 5, the ordinance gave the RBI more firepower in the fight against the banking system's mountain of bad loans, including creating committees to advise it as well as ordering banks to initiate insolvency proceedings in case of a default.

Immediately after the promulgation of the ordinance, the RBI had eased the minimum requirements for a Joint Lenders' Forum to reach an agreement over a resolution plan, and had ordered banks to adhere to the timelines given in various schemes for resolving stressed loans. Failure to do so would attract penalties.

Pressure on the authorities as well as banks to put an end to the increasing pile of NPAs has been rising, with the Jan-Mar quarter only adding to the banking sector's 9.64 trillion rupees of stressed assets as at the end of December.