Mumbai: The Union Cabinet on Wednesday cleared an Ordinance proposing amendment in the Banking Regulation Act, 1949 that empowers the Reserve Bank of India to license banks and work as a banking regulator.

The amendment has been brought into the Act to give RBI more powers to tackle the mammoth Rs 6 lakh crore non-performing assets that the banking sector is presently staring at.

Some other estimates put these bad loans or stressed assets faced mostly by public sector banks at a figure larger than that. The RBI or for that matter various banks have so far failed to tame the bull of stressed assets.

Last time when the Act was amended was in 1965 when the government wanted cooperative banks to be incorporated under its purview and put in place a few more other changes.

The Ordinance which was cleared on Wednesday has already been dispatched to President Pranab Mukherjee for his assent, and the government will be able to enforce the changed law once it gets Presidential nod.

So, how do the central bank in tandem with banks would be able to tackle the huge stockpile of over Rs 6 lakh croe worth of bad loans? Here are few points that will explain the redressal of stressed assets.

1) RBI that presently regulates banks (or bank companies) would get more 'direct' powers to deal with bad loans as presently it cannot interfere in the matter in its capacity as a banking regulator.

2) The amendment in Banking Regulation Act will involve change in Section 35 which at present deals with powers of inspection for the RBI, according to a report in Mint. Finance Minister Arun Jaitley withheld details of the changed draft as it was not possible before a final nod from the President.

3) The RBI may appoint an oversight committee that will comprise representatives from the central bank. The committee will also take care of concerns shown by banks over probable probe by vigilance agencies.

4) The Mint report adds that there is a scheme for Sustainable Structuring of Stressed Assets or S4A that provides for setting up of an oversight committee that will have "eminent persons" named by Indian Banking Association in consultation with RBI.

5) Interference of RBI in resolution of vexed issue of bad loans it is likely that would accelerate the redressal process. But at the same time, according to Mint report, its intervention may raise conflict on interest as "regulators are at an arm’s length from the commercial decisions of the entities they regulate".