The banking sector, which is saddled with stressed assets of close to Rs 12 lakh crore, was looking forward to a bad loan resolution mechanism
The Reserve Bank of India (RBI) will come out with a new framework for non-performing assets (NPAs) in the next few days. The banking sector, which is saddled with stressed assets of close to Rs 12 lakh crore, was looking forward to a bad loan resolution mechanism.
Many bad loan resolutions had come to a standstill after the Supreme Court of India struck down the February12, 2016 circular, which was a detailed regulatory framework on resolving large loan accounts of Rs 2,000 crore.
RBI governor Shaktikanta Das acknowledged there was a delay in issuing the new circular but added that it would be out very soon.
"It has taken a little more time than we had originally anticipated but it will be issued very shortly. Very shortly means, in a matter of next three or four days,” RBI governor Shaktikanta Das said after he unveiled the second monetary policy of the fiscal.
DNA Money had reported on May 30 that the fresh set of guidelines on stressed assets are expected within a fortnight.
Explaining the delay, Das told the media: "It involved examining various legal issues, it involved very detailed and wide-ranging stakeholder consultations, and internally we had to examine it in detail."
There were 34 power companies with a total debt of Rs 1.75 lakh crore impacted by the February 12 circular.
A new NPA resolution framework was necessitated after Supreme Court struck down the February 12, 2018 circular calling it “Ultra Vires”- meaning that RBI had acted beyond its brief. This circular had made it mandatory for banks to disclose even one-day defaults. Banks were given six months time after the one –day default to devise a timely restructuring plan. If a new resolution was not possible within that time-frame then the account had to be referred to the National Company Law Tribunal.
The power, shipping and sugar companies had challenged the circular in the Court, as they argued that many state-of-the-art power companies built were non-operational for the want of coal linkages or a power purchase agreement. The lack of PPA meant there was no agency that would absorb the power even if it were produced. Power companies argued that if these state-of-the-art power companies are finally liquidated in the NCLT it would be a great loss for the country where power is still scarce.
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