On Wednesday, the Cabinet approved an ordinance to empower the central bank by amending the Banking Regulation law to give it more teeth and set up oversight committees to intervene on behalf of banks while deciding on non-performing assets (NPAs).
There will also be fresh guidelines for the public auction of assets by public sector banks.
"The large, cash-rich public sector undertaking will be encouraged to buy the auctioned assets in their sector by the state-owned banks," said an official.
The amendment of section 35A of the Banking Regulation Act, 1949, will give the Reserve Bank of India (RBI) the right to issue directives in the interest of banks.
President Pranab Mukherjee is expected to give his assent to the ordinance shortly.
The stressed banks may also be encouraged to take a haircut in case of genuine business failure.
Currently, public sector banks (PSBs) are saddled with NPAs or bad loans to the tune of a staggering Rs 6 lakh crore.
Finance Minister Arun Jaitley on Wednesday said that the Cabinet has taken some important decisions with respect to the banking sector which have been referred to the President for assent.
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