The February 12 circular had mandated a resolution plan in 180 days, even in case of single-day default
Reserve Bank of India will issue a new circular on resolution of bad loans.
The central bank governor Shaktikanta Das said, "Supreme Court order has not taken away any power from RBI. The powers are still vested with RBI. It has to be exercised in a certain manner. We will exercise the power which the parliament has given us and see that resolution is done faster," Das said. He added that the existing cases in NCLT will not be affected. "It will have inputs from banks and other practitioners," Das said.
For bankers, who were frenetically ironing out resolution plans for the Rs 10 lakh crore bad debt plaguing the sector, Supreme Court nullifying Reserve Bank of India's circular on time-bound resolutions had come as a shock. But RBI was quick to clarify it will issue a fresh circular on stressed assets taking all stakeholders into consideration.
The February 12 circular of the regulator had mandated a resolution plan in 180 days, even in case of single-day default, for high value loans of Rs 2,000 crore and above.
The circular was helping break the banker-borrower nexus as defaults could no longer be pushed under the carpet. A single-day of default would force the bankers to start acting on resolution plan.
With the governor saying that none of the existing cases referred to the National Company Law Tribunal (NCLT) will be impacted has come as a big relief for bankers, who have spent time and money to get the cases admitted to the bankruptcy court. The February 12 circular was put out under the aegis of the then governor Urjit Patel. Bankers say it was done without any consultations with the lenders, who know the operational challenges, bankers said.
The Supreme Court verdict was in response to the power purchase producers and the shipping association which had moved the court against imminent liquidation of national assets such as power plants and shipping companies. Companies argued that the regulator cannot send the state-of-the-art power plants to the bankruptcy courts, with many of them having to face unexpected external conditions like cancellation of coal blocks by Supreme Court.
Finance minister Arun Jaitley also echoed the governor's views in interviews with various media houses where he said that the sanctity of the IBC will be maintained and RBI will be the key in deciding the matter of bad debt. He said RBI will come out with a fresh set of ideas which will take the current market position in mind and with whatever flexibility is required to meet the economic needs.
When the February 12 circular was issued, RBI had struck down all the earlier restructuring schemes like strategic debt restructuring. "So the banking regulator has no choice but to come up with a new set of regulations," said a banker. Under the circular, companies which were unable to implement a resolution plan by August 27, 2018, were scheduled to be referred to NCLT under IBC by September 11. It was applicable to all loan accounts of over Rs 2,000 crore, leaving IBC as the only mechanism to deal with the stressed accounts.
STRINGENT LAW
- The February 12 circular had mandated a resolution plan in 180 days, even in case of single-day default
- It was helping break the banker-borrower nexus as defaults could no longer be pushed under the carpet.
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