Monday, June 21

Bad loan battle: RBI to issue new directive after SC ruling

The RBI will not relent in its pursuit of bad bank loans and will soon issue a revised directive on stressed asset resolution that will comply with the Supreme Court order striking down the February 2018 circular, governor Shaktikanta Das said.

“We remain committed not only to maintain but also to speed up the resolution of stressed assets in the banking sector,” Das said in the first official comment by the central bank after the SC verdict. “It is very critical for the stability of the banking sector and has an impact on the stability of the overall financial sector. We will do all that is possible to ensure the pace is maintained.”

The circular had stipulated that banks had 180 days to arrive at a debt-resolution plan for loan accounts of Rs 2,000 crore and more, failing which the company would have to be sent to bankruptcy court under Insolvency and Bankruptcy Code (IBC).

Das, who was speaking to the media after RBI announced the monetary policy, declined to say when the new stressed asset resolution framework will be released or whether the old restructuring schemes would be restored.

“In the light of Supreme Court order, RBI will take the necessary step including issuance of a revised circular as maybe necessary for expeditious and effective resolution of stressed assets,” Das said. “The RBI stands committed to maintain and enhance the momentum of resolution of stressed assets and adherence to credit discipline.”

The court had said the RBI cannot issue a blanket direction but upheld its power to issue instructions on specific companies. Das said the apex court had in fact upheld the power vested in the RBI.

“The powers of RBI, it must be added, under Section 35 A(a) and other sections of the Act are therefore not in doubt at all,” he said. “What the Supreme Court has said (is that) the powers of RBI under the said section has to be exercised in a particular manner. The validity of the section stands and henceforth we have to comply with the directions of honourable Supreme Court and act accordingly.”

Finance minister Arun Jaitley had told ET on Wednesday that the judgment was procedural in nature. “I don’t see a major crisis. This judgment is really more procedural — this is not substantive,” he said. “A judgment which says procedure or your application of mind or your width of your power is inadequate can always be rectified by an appropriate action.”

Chief economic adviser Krishnamurthy Subramanian said the government and the RBI will work together to ensure smooth implementation of the Supreme Court ruling and that there would be no changes in the IBC.

“The government and RBI will be working together on this matter. I don’t think changes in IBC law should be necessitated. It will be early to comment,” he said.

The ruling gives banks the option to decide whether they need to refer a case to bankruptcy court. Some analysts have said however that it may allow lenders room to delay provisioning and recoveries by evergreening loans given to debt-laden companies.

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