The Reserve Bank Thursday asserted that the Supreme Court quashing its stressed asset resolution circular does not curtail its powers to get debt resolutions carried out, and announced that it will come out with a revised set of rules shortly.
The apex court quashing the February 12, 2018 RBI circular Tuesday has created widespread concerns on the future of stressed assets resolutions and the likely delays towards the same, apart from also reversing on the gains made on credit discipline in the last one year or so.
“The Supreme Court order has not taken away any powers from the RBI. The powers are still vested with the RBI but has to be exercised in a particular manner,” Governor Shaktikanta Das told reporters after the customary post-policy presser at the Mint Road headquarters.
“We will exercise the powers which Parliament has given to us and see that the resolution is done fast.”
As expected, Das said that the RBI will come out with a revised circular without “undue delay”.
“The RBI stands committed to maintain and enhance the momentum of resolution of stressed assets and adherence to credit discipline.”
Das explained that Section 35AA of the amended Banking Resolution Act has been upheld by the SC but added that as per the statute, the RBI will have to exercise its powers “in respect of specific defaults by specific debtors”.
Referring to the a blanket nature of the February 12 circular, which analysts have blamed as the concern area, Das said the apex court has found the circular as “ultra vires” for being implemented for all large “debtors generally”.
“What basically the SC has said is that the powers of the RBI under Section 35AA have to be exercised in a particular manner but the validity of the Section 35AA stands,” he said.
On a petition filed by around 70 stressed companies from the power, shipping and textiles space, a two-judge bench of the apex court comprising Rohinton Nariman and Vineet Saran had Tuesday declared the February 12 circular as ultra vires.
The stringent RBI circular had mandated banks to recognise even one-day defaults and insisted on finding a resolution within 180 days to a stressed account, failing which the account has to be sent to bankruptcy courts if it is Rs 2,000 crore and above.
Thirty-four power companies which owe over Rs 2.2 lakh crore to banks, among other petitioners in the case, stand to benefit for the ruling as they will not be dragged to the NCLTs now at a go but can negotiate a debt restructuring with individual banks.
Legal and industry experts have voiced concern over the order, stating that there was a marked change in borrowers behaviour after the circular was issued which would now change for the worse.
A Parliamentary panel was among the critics of the now impugned circular.
“Although the new guidelines have been termed as harmonised and simplified generic framework, yet they are far from being so,” said the Standing Committee on Energy in its report tabled in Parliament last year.
“The committee is of the opinion that the coinage of restructuring in resolution plans is hollow without having any serious meaning or business which only reflects the blurred vision of the RBI in understanding and appreciating the problems.
“The committee expects that clarity of thought and transparency in approach should be the guiding factor to streamline and strengthen the sector squirming under ineluctable hardships,” it had said.