Cabinet may take up NPA policy, new pension package this week

Framework on NPAs envisages changes to Prevention of Corruption Act and Banking Regulation Act

The Union Cabinet, later this week, could consider a new framework to deal with the Rs 6-lakh crore worth of toxic assets in the banking system. And, a Rs 5,000-crore pension plan for retired central government employees.

Sources say that the proposed framework on non-performing assets (NPAs) envisages amendments to the Prevention of Corruption Act and Banking Regulation Act. 

With the former, amendments will allow commercially viable decisions by banks which are not later scrutinised by probe agencies. With the latter, the Reserve Bank of India (RBI) could get an explicit mandate to intervene on behalf of state-owned banks while deciding on how to deal with NPAs.

The view in the government is that except for legislative action on these two Bills, the current systems in place at banks have enough teeth to deal with bad assets. 

Both the amendments are possible in the next session of Parliament, this newspaper has learnt.

The new framework envisages setting up multiple oversight committees under the aegis of the RBI to monitor progress of the top 35-40 NPA accounts in value terms, constituting 60 per cent of all NPAs. These committees could get an enhanced mandate to help the lenders with their decision-making, including overseeing the Joint Lenders’ Forum (JLF), the consortium of bankers dealing with particular projects. 

They might also be able to decide on matters such as which bank will take how much ‘haircut’ and to intervene if a JLF reaches a deadlock, said a senior government official.

As reported earlier, the framework will also enable a JLF to deal more effectively with NPAs, by possibly tweaking the current guidelines and reducing the threshold in terms of exposure, as well as the number of banks within a JLF, for taking a decision on NPAs. In the current rules, decisions regarding a bad loan or toxic assets are binding on all lenders in a JLF if approved by 75 per cent in terms of exposure or 60 per cent in absolute numbers. These are being seen as too high and there could be a change for enabling JLFs to decide on NPAs based on a simple majority. The Centre is expected to bring an enabling provision under which, once a simple majority of the banks, based on their exposure to a bad loan, takes a decision, it will be binding on other banks who are part of the group. 

The new exposure level to be set is likely to be lower than the current 75 per cent.

The new pension policy has been proposed by an empowered panel of secretaries. The proposal is based on the Seventh Pay Commission’s recommendation that pension for any official who retired from a post be based on the latest drawn salary.

Lifelines in a sea of bad loans 

• Union Cabinet chaired by PM to meet later this week

• New NPA framework envisages amendments to Prevention of Corruption Act

• Amendments also expected to Banking Regulation Act

• RBI, its oversight panels, could get more teeth to deal with NPAs

• Central bank may be given explicit power to step in and decide on NPAs

• New expected pension plan based on pay panel recommendations