Amendment in Banking Regulation Act comes to rescue of five banks

New Delhi: The ordinance amending the Banking Regulation Act and providing more powers to the Reserve Bank of India to deal with cases of stressed assets has provided relief to five public sector banks which were facing the worst situation as far as the Non-performing Asset or NPA is concerned.

One of these banks, Indian Overseas Bank, had as much as 22 per cent of advances as NPA causing much discomfort to it. The other banks which had more than 16 per cent of advances as bad loan are: Uco Banik, Bank of Maharashtra, United Bank of India and IDBI Bank.

After Indian Overseas Bank, the bank which suffered the most was Uco Bank. The Bank of Maharashtra was placesd third in this regard. Taking all public sector banks together the NPA accounted for nine per cent of total loan.

The ordinance which was promulgated last week provides for initiation of insolvency process for recovery of advances .This will provide relief to these banks.

It also provides powers to the RBI to oversee loans provided by public sector banks and to guide them in case of defaults.

It is because of these provisions that the move has been appreciated by most of the newspapers. In an editorial which appeared on Monday a prominent English daily said," it is a welcome move".

The paper has , however, cautioned against imputing bad motive behind all the bad loans . Some times decisions may wrong even though they were taken with good intention and without any financial or other gains.

The RBI should act against the bank after proper investigation and due diligence. Quit pro quo may not be the reason for every bad loan deal.

The ordinance is likely to be replaced by an Act after passage of a bill by parliament in the forthcoming monsoon session.