The Reserve Bank of India (RBI) will, for the time being, leave it to individual banks to decide how best to deal with corporate loan defaulters, and the government will exercise its majority shareholder rights to nudge state-run banks to take insolvent companies to bankruptcy courts, a government official said on Wednesday.
The official’s statement came after the Supreme Court on Tuesday quashed RBI’s 12 February circular instructing lenders to take defaulters to bankruptcy resolution after 180 days of the default. The government’s approach in the wake of the apex court ruling is to use its ownership rights to ensure that defaulters are firmly dealt with under the insolvency and bankruptcy code (IBC).
RBI will examine the implications of the Supreme Court decision and come up with a considered response, which may take some time. “These things take time. The RBI may not immediately come up with specific guidelines or comments regarding restructuring of loans,” said the official, who did not wish to be named.
“I am sure RBI will also decide, with the present situation of the market, what is to be done with various aspects contained in the circular,” finance minister Arun Jaitley told reporters on Tuesday.
RBI did not respond to an emailed query on the matter.
“The government, being the majority stakeholder in public sector banks (PSBs), may take stock of the non-performing assets (NPAs) and direct banks to refer certain stressed accounts for resolution under the insolvency and bankruptcy code (IBC),” the government official said.
The quashed RBI circular, sent on 12 February 2018, also withdrew existing loan structuring plans such as corporate debt restructuring (CDR), strategic debt restructuring (SDR), a scheme for sustainable structuring of stressed assets (S4A) and joint lenders’ forum, with immediate effect as they had failed to bring down NPAs that had ballooned to ₹8.36 trillion as of 30 September 2017.
IBC, a most effective government policy that had put fear into fraudulent borrowers, may still retain its teeth, the official said.
“The importance of the IBC will not be diluted as banks can even now choose to bring defaulters under bankruptcy,” the official said.
The central bank’s circular directed banks to refer defaulters to bankruptcy court if they could not find a resolution plan within 180 days in case a stressed account had dues more than ₹2,000 crore.
Several firms had challenged the circular in different courts. Companies felt that RBI’s rules were harsh and the delay in repayment of loans was also because of external factors.
Source: Livemint, April 4, 2019