Reserve Bank of India (RBI) Governor Shaktikanta Das said on Thursday 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.
The Supreme Court on Tuesday declared the central bank’s February 12, 2018 circular as ultra vires of Section 35AA of the Banking Regulation Act, saying the RBI can only issue order on “specific” defaults but cannot direct “generic insolvency” proceedings.
“All the major cases which were referred to (bankruptcy courts) are not affected by this Supreme Court order because they were all referred earlier,” Das told reporters after the Monetary Policy Committee meeting.
As per the February 12, 2018 RBI circular, banks had to recognise even one-day default in loans of Rs 2,000 crore and above as non-performing and allow a window of 180 days to resolve the stressed accounts, failing which they had to be sent to bankruptcy courts.
However, since the RBI in June 2017 issued the names of 12 specific defaulters, including Essar Steel, Bhushan Power and JP Infra, accounting for 25 per cent of the total bad debt for resolution under the Insolvency and Bankruptcy Code (IBC), the Supreme Court order would not impact these cases nor would it impact its second list of 29 defaulters issued in August 2017.
The clarity from the RBI Governor came as a relief as there was general apprehension about the fate of the ongoing insolvency cases. Even rating agency Moody’s in a note on Wednesday speculated that the judgment may require resolution processes to be started afresh.
As for the court’s order, Das said it did not take away the powers of the RBI to initiate insolvency proceedings against specific cases, but only laid out the process to be followed by the central bank which the RBI would comply with but would not allow any delay in resolution process.
“The powers of the RBI under Section 35AA and other sections of the Banking Regulation Act, 1949 are not in doubt at all. What the Supreme Court basically said is that the powers of the RBI under Section 35AA have to be exercised in a particular manner and henceforth we have to comply with the directions of the Supreme Court in this regard and act accordingly.
“We remain committed to not only maintain but also to speed up the momentum of resolution of stressed assets in the banking sector because it is very critical for the stability of the sector and has an impact on the overall financial sector,” Das said.
Das further said that the RBI will take necessary steps, including the issuance of a revised circular, as may be necessary for the “expeditious and effective resolution of stressed assets”.
The RBI stands committed to maintain and enhance the momentum of resolution of stressed assets and adherence to credit discipline, he said.
“We will soon get the revised circular. There will not be any undue delay in that,” Das said.
The RBI’s decision to release a fresh circular soon was welcomed by the industry, which wants the revised circular to take inputs from the banks, practitioners and other stakeholders.
“Also, the decision to send defaulting companies to the National Company Law Tribunal (NCLT) should be left to the discretion of the banks, but can be monitored closely by the RBI,” said Sapan Gupta, Partner and National Practice Head (banking and finance) at Shardul Amarchand Mangaldas and Company.
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.”
Source: Business Standards, April 5, 2019