Although this legislation will enable RBI to better manage its vested interests, the main focus, however, remains to solve- rising bad loans.
The legislation if implemented will also allow RBI to set up oversight panels to stop backlash from probe agencies.
RBI's festering bad loan problem stunts growth
How did bad loans arise to such extent?
The problem of bad loans arose due to unchecked investments in the past in sectors like power, infrastructure and steel, spearheaded by enthusiastic banks lending primarily from the state-owned lenders.
Things turned sour, when those, who had taken the loan failed to return it due to stalled projects or stretched projection of profit margin.
Deputy Governor of RBI's fix for bad debt
Deputy Governor of the RBI Viral Acharya had said that there are two ways to handle stressed assets.
First, the bank in the short run can opt for credit agencies to evaluate the performance of a loan and take a decision sans influence.
Secondly, in cases, where the chances of recovery are thin; to form a national asset agency firm with government stake.
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Demonetization will push back bad loan recovery
Fitch, a rating agency, has released a statement that says the shortage of cash in the market due to the demonetization of large denomination currency notes has caused a "disruptive impact" on India's economy.
This will deter the chances of bad loan recoveries, as the income of several borrowers has suffered and they are not capable of repaying their loan amount.
Chief of India's biggest bank sends distress call
State Bank of India chairman Arundhati Bhattacharya said that she is open to any suggestions to sort out the problem of bad loans.
She was quoted saying "anything that will help to put these stressed accounts into becoming standard would be welcome," reflecting on the fact that years of half-hearted measures to tackle this menace has finally proved fatal.
SBI sees no respite from bad loans anytime soon
State Bank of India said that its problem of bad loans will remain a pressing concern for the next few quarters.
It all depends on the speed that MSMEs and SMEs recover from the effects of demonetization.
The biggest lender in the home loan market has Rs. 2,12,600 crore of bad loans on its shoulders.
It's a ticking time bomb with no time to spare
A rising level of bad loans have restricted the lending capacity of banks and have also prevented them from making any further interest rate cuts.
The absence of lower interest rates is key to allure private investors which is essential to country's economic growth.
With time, bad loans may eventually end up disrupting the entire investment channel leading to a financial disaster.