Bankers seek relaxation in RBI’s February 12 circular

Burden of non-performing assets and their resolution dominated the first meeting of bankers and the new Reserve Bank of India governor Shaktikanta Das on Thursday. 

Bankers have asked for a longer resolution period for high value loans, especially in the power sector and the relaxation of the one-day default norm.

Bankers asked for relaxations on the resolution relating to non-performing assets (NPA) issued on February 12, 2018. The circular had brought down the timelines for resolutions and faster action in case of a default. The revised framework of the circular says that as soon as there is a default (one day default), all lenders, either singly or jointly, should initiate steps to cure the default without providing for any common platform. 

Bankers say that a 30-day delay in paying up the debt is considered normal, and that the default action should begin only if there is a non-payment beyond 30 days instead of a one-day default.

The other issue about the February 12 circular was on a longer window for resolution of high value accounts, with reference to the power sector loans where the plants are set up, but they are lying idle for want of coal and implementation of tariffs. 

The circular says a resolution professional should be appointed within 180 days for accounts of Rs 2,000 crore and above. 

The bankers said this should be extended. Some bankers also mooted the idea of setting up an Asset Reconstruction Company (ARC) to resolve the power assets.

“The February 12 circular and the resolution of NPAs featured prominently in our first meeting with the RBI governor. We are meeting the RBI governor after two years, so it was important that we apprised him of the various issues in the sector,” said a chief executive officer of a bank. Former RBI governor Urjit Patel had never met bankers in the two years that he was in office. 

It is estimated that over Rs 3 lakh crore of assets are stuck in various stages of resolution in the National Company Law Tribunal and several large NPA accounts of close to Rs 1 lakh crore for recovery stuck in various judicial levels. The large non-performing assets (NPAs) stuck in the various judicial levels are Essar Steel, Ruchi Soya, Bhushan Power and Steel.  

“The circular has infused a discipline among the corporates and some relaxations would deliver better results,” a banker told the governor. 

While most of the bankers were appreciative of the February 12 circular, they sought some relaxations like an extended period before an asset is referred to the NCLT and for more time to implement the resolution plan, especially of high value loans. 

All three bankers spoken to, said the meeting was very warm and cordial, with the new governor willing to listen to all the issues. “Though he did not make any comments, he gave a patient hearing to all the issues raised,” said a chief executive officer who attended the meeting.

The resolution of the NPAs has been a long standing issue, so bankers said this obviously was a major point of discussion.

“Though it was a general discussion the issue of non-performing assets and their resolution figured prominently in the first meeting between the chiefs of all the Mumbai-based public sector banks and the new Reserve Bank of India governor,” said a banker who attended the meeting.  

Bankers also reassured the governor that  credit is flowing to all segments of the economy, especially the micro, small medium enterprises.

There was also discussion on the new ATM guidelines, which may make the ATM operation business very expensive and unviable.

THE BAD LOAN PILE

Rs 3 lakh crore – of assets are stuck in various stages of resolution in the NCLT 

Rs 1 lakh crore – of large NPA accounts recovery stuck in various judicial levels

180 days – required to appoint a resolution professional under the guidelines

What bankers want

• Relaxations including an extended period before an asset is referred to NCLT
   
• More time to implement the resolution plan, especially of high value loans
   
• There was also discussion on the new ATM guidelines, which may make the ATM operation business very expensive 
   
• Bankers say the circular  has infused a discipline among the corporates and some relaxations would deliver better results