Bank of baroda

Amendments to the Banking Regulation Act
A comprehensive bill to amend the Banking Regulation Act, 1949, was recently passed, which provides for the following:
to remove the lower and upper bounds to the Statutory Liquidity Ratio and provide flexibility to RBI to prescribe
prudential norms;
to allow banking companies to issue preference shares; and
to introduce specific provisions to enable the consolidated supervision of banks and their subsidiaries by RBI in
consonance with international best practices.
introduction of new provision to provide for set-off of losses to banking companies in cases of amalgamation; and
enhancement of credit-linking of Self-Help Groups with the Banking System.
Amendments to the Reserve Bank of India Act
Further, the Finance Act, 2005, provides for the introduction of the following amendments to the Reserve Bank of India
Act, 1934:
to remove the limits of the CRR to facilitate greater flexibility in monetary policy; and
to enable RBI to lend or borrow securities by way of repo, reverse repo or otherwise.

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Legislative Framework for Recovery of Debts Due to Banks
In fiscal 2003, the Parliament passed the Securitisation Act. The Securitisation Act provides the powers of “seize and
desist” to banks. The Act provides that a “secured creditor” may, in respect of loans classified as non-performing in
accordance with RBI guidelines, give notice in writing to the borrower requiring it to discharge its liabilities within 60
days, failing which the secured creditor may take possession of the assets constituting the security for the loan, and
exercise management rights in relation thereto, including the right to sell or otherwise dispose of the assets. This Act also
provides for the establishment of asset reconstruction companies regulated by RBI to acquire assets from banks and
financial institutions. The constitutionality of the Securitisation Act was challenged in Mardia Chemicals Limited v. Union of
India, AIR 2004 SC 2371. The Supreme Court upheld the validity of the Act, except Section 17(2), wherein they found that
the requirement of making a deposit of 75% of the amount claimed at the time of making a petition or an appeal to the
DRT in order to challenge the measures taken by the creditor was unreasonable and therefore, struck down. RBI has
issued guidelines for asset reconstruction companies in respect of their establishment, registration and licensing by RBI,
and operations.
Earlier, following the recommendations of the Narasimham Committee I, the Recovery of Debts due to Banks and
Financial Institutions Act, 1993 was enacted. This legislation provides for the establishment of a tribunal for the speedy
resolution of litigation and the recovery of debts owed to banks or financial institutions. The legislation creates tribunals
before which the banks or the financial institutions can file a suit for recovery of the amounts due to them. However, if a
scheme of reconstruction is pending before the Board for Industrial and Financial Reconstruction, under the Sick Industrial
Companies (Special Provision) Act, 1985, no proceeding for recovery can be initiated or continued before the tribunals.
While presenting its budget for fiscal 2002, the Government of India announced measures for establishing more debt
recovery tribunals and the eventual repeal of the Sick Industrial Companies (Special Provision) Act, 1985. While the
Parliament has repealed this Act, the notification to make the repeal effective has not yet been issued.