Debtors can't be allowed to paralyse banking system, says Arun Jaitley

Finance Minister Arun Jaitley on Thursday said public sector banks needed the Banking Regulations Ordinance in order to be able to take decisions without fear of being subjected to investigation later.

Replying to a debate on amendments to the Banking Regulations Act, Jaitley, who also holds the defence and corporate affairs portfolios, said the decision to take defaulters through the bankruptcy process was not a political one, and that such a move was necessary to start clearing the Rs 7 lakh crore toxic assets in the banking system.

The amendments were passed by Lok Sabha and the Bill will now move to the Upper House of Parliament.

The Insolvency and Bankruptcy Code (IBC) allows creditors to file insolvency cases against defaulters, which are given 180 days for restructuring.

The National Company Law Tribunal (NCLT) can offer a company an extension of 90 days but if a resolution plan is not finalised by then, its assets will be liquidated. All financial creditors will receive their shares first and then claims of operational creditors will be settled.

Jaitley said the reason why banks did not take their biggest defaulters through the insolvency process before the ordinance was issued was fear among bankers of being probed later under the Prevention of Corruption Act. A Reserve Bank of India (RBI) oversight committee was keeping an eye on the recovery process, he added.

In the last few months, few banks have filed insolvency petitions.