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Mumbai: In a bid to speed up resolution of bad loans, the Reserve Bank of India (RBI) added three new members to the oversight committee and empowered the panel to approve stressed asset cases where lenders have more than Rs500 crore exposure.

Given the expectation of a rise in such cases, an expanded oversight committee (OC) will ensure that the resolution process is not impeded because of delay in approvals.

On Thursday, RBI named M.B.N. Rao, a former chairman and managing director (CMD) of Canara Bank; Y.M. Deosthalee, a former CMD of L&T Finance Holdings Ltd; and S. Raman, whole time member at the Securities and Exchange Board of India; to the current two-member OC consisting of former State Bank of India chairman Janki Ballabh and former chief vigilance commissioner Pradeep Kumar.

According to the reconstituted structure, the five-member OC will be led by a chairman and work through multiple benches to approve various cases of restructuring referred by banks. Pradeep Kumar has been appointed as the chairman of the OC.

This is part of the central bank’s plan to deal with the Indian banking system’s Rs10 trillion stressed loan problem. Under a 5 May ordinance amending the Banking Regulation Act, the central bank has the powers to suggest to, and even compel, banks to invoke proceedings against defaulters.

With the expanded mandate, the OC will be responsible for approving cases of restructuring under the central bank’s S4A (Scheme for Sustainable Structuring of Stressed Assets) as well as for resolving stressed cases where the aggregate exposure of the banking industry is above Rs500 crore.

Under SDR, banks have the ability to convert part of their debt in a stressed company to 51% equity, allowing them to take operational control and sell the company. Under S4A, banks can break up the debt into sustainable and unsustainable halves, allowing deep restructuring in the latter while the former continues to be serviced.

Originally, the OC was constituted by the Indian Banks’ Association in consultation with RBI. It was formed when the central bank introduced S4A in June 2016. The idea was that the clearance from OC will ensure that banks don’t come under the scanner of investigating agencies and the vigilance authority.

Protection of commercial decisions from vigilance inquiries has been a key demand from bankers, especially after the Central Bureau of Investigation arrested former officials of IDBI Bank Ltd for sanctioning loans worth Rs950 crore to Kingfisher Airlines Ltd.

As part of its game plan to deal with stressed assets, RBI has outlined steps, especially after it was empowered to intervene directly in stressed asset cases. Last week, the central bank said 12 accounts representing about 25% of the gross bad loans in the banking system would be eligible for immediate reference for bankruptcy proceedings.

An internal committee, mainly consisting of RBI’s independent board members, suggested that accounts with outstanding amounts of over Rs5,000 crore, of which at least 60% was classified as non-performing by banks as of 31 March 2016, can be referred for bankruptcy proceedings.

“Given the current stressed cash flows, more companies can potentially come up for some or the other form of restructuring," said Abhishek Bhattacharya, director, corporate ratings, at India Ratings & Research Pvt. Ltd. “Not all cases can be tried at the National Company Law Tribunal. Hence, an OC can empower banks to maybe bring new management and revive a unit, rather than directly go for insolvency."

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