After the Supreme Court scrapped a Reserve Bank of India circular on the provisions for declaring a company bankrupt even on a one-day overdue, Finance Minister Arun Jaitley on Tuesday expressed confidence that the central bank will take a call in line with the present conditions of the market.
“We are trying to get the judgement … We will read it and I am sure the RBI will also now decide in the present condition of the market what is to be done with the various aspects contained in that circular,” he told reporters when asked to react to the order.
The Supreme Court on Tuesday quashed the RBI circular issued last year that pertains to the provisions for declaring a company bankrupt even on a one-day overdue.
The apex court bench, headed by Justice R F Nariman said, “We have declared the RBI circular ultra vires.”
On February 12, 2018, the central bank had issued a revised framework on resolution of stressed assets which invalidated all other resolution mechanisms and asked banks to mandatorily recognise even one-day defaults and resolve the account in 180 days, failing which it must take the borrower to the National Company Law Tribunals (NCLT) for bankruptcy proceedings for large account of Rs 2,000 crore and above.
Meanwhile, bankers were of the opinion that the SC quashing the February 12 circular on non-performing asset (NPA) recognition does not dilute credit discipline and that they will continue the resolution process under the bankruptcy code which was upheld by the apex court earlier.
Rajnish Kumar, chairman, of State Bank of India told CNBC that banks have already put a resolution framework under bank-led resolution approach which is already functioning.
“The Supreme Court has upheld Constitutional validity of the Insolvency and Bankruptcy Code (IBC) in their previous judgement. So, the intent to bring discipline into the lending and borrowing market is not getting diluted in any manner with this judgement,” Kumar said.
He said SBI’s approach to resolution of stressed assets is proactive-recognising assets early and take corrective action, and it will not change.
“The discipline which has come into the market around repayment…I don’t think that is going to be diluted in any manner with this judgement,” Kumar stressed.
A senior official of a state-run bank was quoted by PTI as saying that the apex court striking down the circular does not take away bankers’ right go to NCLT.
“Banks will continue with their resolution process and take defaulting companies to NCLTs,” the official said.
Lenders had made a representation to the central bank for relaxation in some of the norms in February 12 circular including one day-default norms but without any success. —With PTI