RBI to revamp oversight panel to tackle bad loans

The Reserve Bank of India on Monday said it will reconstitute and expand the oversight committee to deal with rising bad loans.

The central bank is also planning to expand the scope of cases to be referred to the committee beyond those under the Scheme for Sustainable Structuring of Stressed Assets (S4A).

This is part of the central bank’s action plan to implement the recently passed ordinance that amended the Banking Regulation Act.

Currently, the Oversight Committee (OC) consists of two members. “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. While the current Members will continue in the reconstituted OC, names of a few more will be announced soon,” the RBI said in a press statement.

The RBI had recently changed the norms for decision-making in the Joint Lending Forum (JLF) whereby consent required for approval of a proposal was changed to 60 per cent by value from 75 per cent earlier.

Participating banks have been mandated to implement the JLF’s decision without any additional conditionality. The Boards of banks were advised to empower their executives to implement JLF decisions without further reference to them, and it was made clear to the banks that non-adherence would invite enforcement actions.

Going forward, the RBI is working on a framework to facilitate an “objective and consistent decision-making process” with regard to cases that are referred for resolution under the Insolvency and Bankruptcy code (IBC).

“Reserve Bank 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 majorly of its independent Board Members to advise it in this matter,” the central bank said.

With a view to prevent 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 central bank

“The Reserve Bank notes that the proper exercise of the enhanced empowerment would require coordination with and cooperation from several stakeholders including banks, ARCs, rating agencies, IBBI and PE firms, to which end the Reserve Bank would be holding meetings in the near future with these stakeholders,” it said.