The Reserve Bank of India (RBI) will soon come out with a revised circular for bad loan resolution after its February 12, 2018, circular was quashed by the Supreme Court. RBI Governor Shaktikanta Das on Thursday said the RBI will issue a revised circular without “undue delay”.
“In the light of the Supreme Court order, the RBI will take necessary steps, including issuance of a revised circular, as may be necessary, for expeditious and effective resolution of stressed assets,” Das said.
The Supreme Court on April 2 ruled that the RBI’s February 12, 2018, circular by which the central bank promulgated a revised framework for resolution of stressed assets was ultra vires of Section 35AA of the Banking Regulation Act, 1949.
A bench of Justices R F Nariman and Vineet Saran said that as a result “all actions taken under the said circular, including actions by which the Insolvency Code has been triggered must fall along with the said circular”.
Das said the powers of the central bank under Section 35AA of the Banking Regulation Act are not in doubt, however, the apex court has said they have to be exercised in a “particular manner”. “We have to comply with the Supreme Court order and act accordingly,” Das said. He said the RBI stands committed to maintain and enhance the momentum of resolution of stressed assets and adherence to credit discipline.
The February 12 circular required lenders to put in place Board-approved policies for resolution including the timelines and scrapped all restructuring schemes. It directed banks to resolve debts over Rs 2,000 crore on or after March 1, 2018, within 180 days, failing which resolution proceedings should be initiated. The circular mandated banks to disclose defaults even if interest repayment is overdue by one day.
Several companies from the power and shipping sectors had challenged the circular, arguing that the time given by the RBI was not enough to tackle bad debt. The RBI argued that the circular had been issued in the public interest, with a view to ensure the timely resolution of stressed assets.
Das said a fast resolution of stressed assets is critical for the stability of the banking sector. “The Supreme Court has not taken away any power from us. We will exercise the power that the parliament has given us and ensure that the resolution is done,” said Das.
He also said the Insolvency and Bankruptcy Code (IBC) gives liberty to the creditors and banks to approach the National Company Law Tribunal (NCLT) in cases of default. “Liberty given to creditors and banks to move NCLT has not been interfered with. All the major cases that were referred to NCLT by banks have not been affected by the Supreme Court order,” Das said.