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The stressed loans resolution push which the government has undertaken through the Banking Regulation (Amendment) Ordinance 2017 will empower the Reserve Bank of India (RBI) to directly intervene in settling bad loan cases. While the RBI already has adequate general power under Section 35A to give directions to banks, the amendment to the Banking Regulation Act is being done to complement changes in the regulatory system following the introduction of the Insolvency and Bankruptcy Code (IBC). In the Banking Regulation Act 1949, two more Sections got added – Section 35AA and section 35AB.
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The Central Government may by order authorise the Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016,” the gazette notification said. Jaitley further said that the banks necessarily need to be in a robust position to support growth. “And if the banks have an unacceptably high level of NPAs (non-performing asset), this hinders their capacity,” he said, explaining that in order to further empower the apex bank, the Cabinet on Wednesday decided to recommend to the President, the issuance of an ordinance.