File photo used for representational purpose

NEW DELHI: The Cabinet recommended on Wednesday an ordinance empowering the Reserve Bank of India to instruct banks to act against top 20-25 loan defaulters as part of a series of steps aimed at helping lenders get bad debt off their books .

The details of the package, which was worked out after several months of consultations between the government, bankers and RBI , are expected to be announced in a day or two, once President Pranab Mukherjee clears the ordinance.

Sources said that the government may be able to advise RBI on certain cases, but overall the idea is to empower the regulator to issue specific instructions.

Public sector banks are saddled with non-performing assets or bad loans of Rs 6 lakh crore, which has impacted the finances of several lenders. Although the government had initiated steps earlier, they were seen to be inadequate in restoring the health of the banks.

Banks have been reluctant to work out settlement packages, including sale to asset reconstruction companies at a discount, fearing adverse remarks from the Central Vigilance Commission and the Comptroller & Auditor General, in addition to facing scrutiny from investigative agencies such as CBI.

As part of the set of measures proposed by the lenders, the government and RBI are also looking to strengthen the current corporate debt restructuring mechanism that allows them to convert more than 10% of their loans into equity and also provides for a strengthened oversight mechanism. At present, there is a two-member oversight committee comprising former CVC Pradeep Kumar and ex-vigilance commissioner Janaki Ballabh. Sources indicated that the set-up may be strengthened.

Without giving details, finance minister Arun Jaitley said that the Cabinet had taken some important decisions in respect of the banking sector. “There is a convention that when some proposal is referred to the President, then details of it cannot be disclosed till it is approved. As soon as the approval comes, details will be shared,” he told reporters.

Banks had also petitioned Jaitley against some of the measures in RBI’s NPA reduction plan as the Scheme for Sustainable Structuring of Stressed Assets , or S4A, does not allow for increasing the tenure of the loan or change in interest rates, inhibiting the ability of the lenders to rework loans. “It is difficult to restructure loans under these circumstances,” said a banker.



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