The Reserve Bank will issue a new set of guidelines for bad loan resolution, replacing the February 12 circular that was quashed by the Supreme Court, “within the next three-four days”, Governor Shaktikanta Das said on Thursday.
The apex court had on April 2 struck down the stringent RBI circular, issued on February 12, 2018, for resolving bad loans, under which a company could be labelled an NPA if it missed repayment for a day. Banks were asked to find a resolution within 180 days or else it should be sent to the bankruptcy courts. But the Supreme Court had declared the circular “ultra vires”.
“A revised circular (over the February 12 circular) will be issued very shortly. Very shortly means, in a matter of, may be, next three or four days,” Das told reporters after the second monetary policy, wherein he announced the third consecutive rate cut.
“It has taken more time than we anticipated because it involved examining various legal issues and wide-ranging stakeholder consultations,” he said, explaining the delay.
Under the February 12 framework, banks were asked to disclose defaults even of a day and had to find a resolution plan within 180 days in case of large account of Rs 2,000 crore and above, failing which it would be send for bankruptcy.
Power sector companies, which were affected the most by the circular, argued that their outstanding loans of Rs 5.65 lakh crore (as of March 2018) were a result of factors beyond their control, such as unavailability of fuel and cancellation of coal blocks by the apex court/ government and non-payment by state-run discoms.
GMR Energy, RattanIndia Power, Association of Power Producers, Independent Power Producers’ Association of India, the Sugar Manufacturing Association from Tamil Nadu and a shipbuilding association from Gujarat had moved different courts against the circular.
The petitioners had challenged the circular, arguing that applying a 180-day limit to all sectors of the economy without going into the special problems faced by each would treat “unequals equally” and would be arbitrary and discriminatory, and therefore, violative of Article 14 of the Constitution.
The Supreme Court order came in on a petition filed by the central bank challenging the Allahabad High Court order, which had asked it and the Finance Ministry to treat power sector NPAs separately, as their woes were mostly driven by external factors.
According to an earlier estimate by rating agency Icra, the total debt impacted due to the February 12 circular is around Rs 3.8 lakh crore across 70 large borrowers, of which Rs 2 lakh crore across 34 borrowers are in the power sector. Of that, 92 per cent of the debt was classified as non-performing by banks as of March 2018 and also made provisions of over 25-40 per cent on these accounts, the rating agency had said.
The February 12 circular also withdrew earlier restructuring schemes, including the corporate debt restructuring scheme (CDR), the strategic debt restructuring scheme (SDR) and the scheme for sustainable structuring of stressed assets (S4A).