Cabinet may take up NPA policy, new pension package this week

The Union Cabinet, later this week, could consider a new framework to deal with the ~6-lakh crore worth of toxic assets in the banking system. And, a ~5,000-crore pension plan for retired central government employees.

Sources say that the proposed framework on non-performing assets (NPAs) envisages amendments to the Prevention of Corruption Act and Banking Regulation Act.

With the former, amendments will allow commercially viable decisions by banks which are not later scrutinised by probe agencies. With the latter, the Reserve Bank of India (RBI) could get an explicit mandate to intervene on behalf of state-owned banks while deciding on how to deal with NPAs.

The view in the government is that except for legislative action on these two Bills, the current systems in place at banks have enough teeth to deal with bad assets.

Both the amendments are possible in the next session of Parliament, this newspaper has learnt.

The new framework envisages setting up multiple oversight committees under the aegis of the RBI to monitor progress of the top 35-40 NPA accounts in value terms, constituting 60 per cent of all NPAs. These committees could get an enhanced mandate to help the lenders with their decisionmaking, including overseeing the Joint Lenders’ Forum (JLF), the consortium of bankers dealing with particular projects.

They might also be able to decide on matters such as which bank will take how much ‘haircut’ and to intervene if a JLF reaches a deadlock, said a senior government official.

As reported earlier, the framework will also enable a JLF to deal more effectively with NPAs, by possibly tweaking the current guidelines and reducing the threshold in terms of exposure, as well as the number of banks within a JLF, for taking a decision on NPAs. In the current rules, decisions regarding a bad loan or toxic assets are binding on all lenders in a JLF if approved by 75 per cent in terms of exposure or 60 per cent in absolute numbers. These are being seen as too high and there could be a change for enabling JLFs to decide on NPAs based on a simple majority. The Centre is expected to bring an enabling provision under which, once a simple majority of the banks, based on their exposure to a bad loan, takes a decision, it will be binding on other banks who are part of the group.