It is in public knowledge that about 50 to 100 influential corporate defaulters are the major contributors to the NPA crisis. Had the government and the RBI faced them strongly, the crisis would not have arisen in the first place. Most of them, apart from having their negative debt service content, have proceeded to receive areas involving expensive natural resources for example hydrocarbons, coal and other minerals and scarce resources such as spectrum. “Having taken credit for “successfully” auctioning those resources, the government will now find itself in a tight corner to allow the RBI, in pursuance of the latest Ordinance, to initiate “insolvency resolution process” against any of those corporate entities”1.
There is additional elements that has loosened the process of the banking sector in actual and the public sector banks mainly. That travels throughout the way the law regulating environment has developed and the conflict-of-interest circumstances that penetrates the banking sector.
For example, the formation of RBI’s Central Board, as pridicted under Section 8 of the RBI Act, is rather open ended and, if one were to see at it as it is today, some members of the Central Board are also a part of the administration of the organisation that RBI is need to manage. There are few who are presently on the Boards of corporate entities which are perhaps a part of the NPA problem itself. A senior member of the RBI sits on the Board of the SBI which is the largest public sector bank in India and has to its credit NPAs totalling upto more than Rs 1, 00,000 crores. Under these circumstances, it is difficult to expect the RBI to function as an unconventional operator.
Maximum number of shareholders in a public sector enterprise comprises of the government. Still the contention of these government employees being part of Boards of the PSBs can sometimes increase questions of dispute of interest, mainly in a situation in which there is an unnatural relation between the corporates and the government.
The concept of “independent” directors, as envisaged in the Companies Act, is conscious to make sure that good corporate governance in the banks should be in the interests of the shareholders. Presently in day today work, however, this concept has detonated into absoluteness leading to non-professionals, often having questionable political integrations, being elected as separate directors of many PSBs. This has dissolved wisdom in decision making in many public sector banks.
The only way to solve this dangerous problem of NPAs in the banking sector, the government will therefore have to inspect the requirement to detach the conflict-of-interest circumstance in the sector by changing the prevalent laws. The government need to work on the behavioural change to smoothen its relationship with the management of the public sector banks.
More important than all these changes is that the government should realise the long-term cost of crony capitalism. If the banking industry is to operate in good health, the RBI must appear as a self-governing director without being hindered by conflicts of interest and the public sector banks should operate as professional financial institutions.
It will Give Investors MAT Relief. IBA The Indian Banks Association has sought removal of Minimum Alternate Tax (MAT) for new investors apprehending depressed bids. Industry wants that if any outstanding liability, inclusive of any accrued interest, is waived in accordance with the approved resolution plan, the waived amount should not be subject to MAT.
Major issue that arise side by side is to make corporate directors of insolvent companies to be a part of resolution procedure, if they have esteemed the guarantee or the same has not been cited.
The ordinance puts in a complete ban on corporate guarantors of insolvent entity from being a part in the resolution procedure.
Initiating insolvency proceedings: in case of default in payment government might ask RBI to initiate the proceeding for the same. If there lies a default in such payments then, these proceedings would be under the Insolvency and Bankruptcy Code, 2016.
Issuing directions on stressed assets: For resolution of stressed assets, frequent directions might be issued by RBI in case of stressed assets.
Committee to advice banks: The committee formulated to regulate those stressed assets can be adviced by RBI as it is authorised to do so. Also the appointment of its members are done by RBI.
Applicability to State Bank of India: The Bill inserts a provision to state that it will also be applicable to the State Bank of India, its subsidiaries, and Regional Rural Banks