Banks and companies will finally get some clarity over the stressed assets troubles, as the Reserve Bank of India (RBI) is set to discuss the contents of the revised circular this week with the finance ministry. RBI is also considering seeking permission from the election commission to issue it soon.
“Expect clarity over the revised circular soon. The RBI would be discussing the matter with the finance ministry this week and once the nuances are discussed, it would come up with the revised circular,” a senior finance ministry official told this publication.
Since the model code of conduct is in place, the RBI will also write to the election commission, seeking permission to publish the revised circular, he said.
Last week, Supreme Court had struck down the circular issued by RBI on February 12, 2018, which had made it mandatory for banks to initiate insolvency proceedings against companies having bad debts to the tune of `2,000 crores or above.
The court had said that RBI’s circular is beyond its legal power or authority and also held that authorisation from Central government is necessary for RBI to direct insolvency process against stressed assets.
While experts have maintained that the court’s judgement does not disturb rights of creditors to initiate insolvency proceeding or any provision in the Insolvency and Bankruptcy Code, lenders and the affected companies both are seeking more clarity from the RBI and are anticipating if the circular will include more changes in its revised format.
For instance, the February 12 circular allowed banks to be allotted shares at `1 for companies, which have a negative book value. This has affected many bidding processes including that of Jet airways, where the bidders and lenders both want the position of the RBI on legality of debt-equity conversion at `1.
The sources from the finance ministry added that the circular would maintain most of the part of the earlier circular, while removing the ‘mandatory’ clause.
Source: Indian express, April 6, 2019