5 April 2019: The RBI is likely to adopt a more accommodative approach towards resolution of stressed assets when it issues a revised circular sometime in the next few days, against the February 12 circular quashed by the Supreme Court.
Sources said the major contention in the controversial February 12, 2018, circular that got challenged in the court leading to its quashing, will be done away with in the new circular.
Instead, banks will be given more time to identify and qualify an account as bad debt and also be given more time to resolve the same.
The Reserve Bank of India is likely to retain the main contours of its February 12, 2018 circular while making the referral to National Company Law Tribunal (NCLT) non-compulsory, sources told IANS.
It might, however, be guided by suggestions earlier given by the Indian Banking Association (IBA) for debt resolution for classification of Non-Performing Asset (NPA) and resolution of bad assets.
Bankers had suggested qualifying a loan as bad debt if the default was for a period of at least 90 days and not one day as was the case in the February 12 circular.
A bank-led resolution should start only after that, according to the bankers.
Moreover, it had suggested a 60 day incubation period post this time for identifying the default. After this, banks would resolve a case within 180 days and consider referring the case to NCLT post that period if the majority of the lenders agreed.
On Tuesday, the Supreme Court struck down a February 12, 2018 circular of the RBI that asked banks to initiate insolvency process against companies even if there was a day’s delay in payment of dues.
As per the circular, banks were told to start the resolution process as soon as a borrower defaulted on a term loan and were given 180 days to cure it, failing which the account would have to be referred to the NCLT. It also said that any company that defaulted on its loan repayment obligation even by a day should be declared a defaulter.
Further, under the new norms, lenders can decide on the resolution if 66 per cent of the lenders agree to take this recourse. This is similar to the adoption of a resolution under IBC where 66 per cent of votes is required.
The revised circular on NPAs is unlikely to include the pre-IBC restructuring tools like Strategic Debt Restructuring (SDR), Corporate Debt Restructuring (CDR), Sustainable Structuring of Stressed Assets or S4A.
In the previous circular the RBI had withdrawn all existing debt restructuring schemes — S4A, CDR, JLF, and SDR — and asked banks to draw resolution plans for all assets where the banking sector’s exposure was more than Rs 2,000 crore.
On Tuesday, RBI Governor Shaktikanta Das said that the recent Supreme Court ruling did not take away the powers of the central bank, nor would it impact the major default cases undergoing insolvency proceedings.
“We will soon get the revised circular. There will not be any undue delay in that,” Das said.
On whether the recent instances of the RBI being taken to the court have impacted its actions, Das said: “It’s always the democratic right of any person, individual or corporate entity to challenge the decision of any authority in the court of law. The RBI cannot be an exception to this.”