An amendment in the Banking Regulation Act, which will be effected through an ordinance, is aimed at quick resolution of some bad debt cases, Union Finance Secretary Ashok Lavasa said on Thursday.
"The government is looking at ensuring an arrangement to resolve some of these (bad debt) cases quickly. In totality, the entire institutional mechanism to deal with bad loans has to be made more effective. That's all about the exercise," Lavasa told CNBC-TV18.
"The ordinance will enable banks and the Reserve Bank of India in the resolution of stressed asset cases," he said.
The senior officer said he would not be able to give how much the NPAs will go down after the new law comes into force, but felt that the changes being made would make the system more effective in handling bad debts.
The policy decision on tackling the mounting bad loans or non-performing assets (NPAs) was cleared by the Union Cabinet on Wednesday evening.
The amendment in the Banking Regulation Act is said to empower the RBI to take strict action against defaulters while being lenient in cases of genuine business failures.
The policy is also likely to contain guidelines regarding public auction of assets of the defaulting companies/individuals.
The details of the ordinance have not been revealed as it awaits President Pranab Mukherjee's approval.
Finance Minister Arun Jaitley on Wednesday gave hints about the decision, but declined to go into the details citing protocol constraints about disclosing something even before the President gets it.
Jaitley merely said the Cabinet has taken an "important decision" relating to the banking sector.
Refusing to divulge details of the ordinance, Lavasa said: "We should see what enabling provisions are there. Let us wait for the notification."
"Eventually, the ordinance will have to be passed by Parliament," he added.
The ordinance assumes significance in the context of the government's attempts to get liquor baron Vijay Mallya extradited to India.
His Kingfisher Airlines had defaulted to the tune of about Rs 9,000 crore in loans to public sector banks. As banks started hounding him for recovery of their loans, Mallya fled to London last year.
