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RBI Governor Shaktikanta Das on Saturday said revised guidelines to deal with stressed assets will sustain improvement in credit culture as it provides for additional provisioning, a strong disincentive for delay in starting resolution proceedings.
After the Suprement Court nullified the Reserve Bank’s circular of February 12, 2018 for resolution of stressed assets, the central bank issued a revised ‘Prudential Framework for Resolution of Stressed Assets’ on Friday. The revised framework for resolving stressed assets by offering lenders a 30-day period to label an account an NPA but has withdrawn all other resolution methods.
The new directions retain the basic spirits of the February 12, 2018 circular as it mandates higher provisioning, bankruptcy options as well as do not allow any other resolution methods outside the new norms. Speaking at the NIBM, at the 15th Annual Convocation of Post Graduate Diploma in Management, here, the RBI governor said the new guidelines provide a system of “strong disincentives” in the form of additional provisioning for delay in initiation of resolution or insolvency proceedings.
The new framework makes inter-creditor agreements mandatory and provides for a majority decision to prevail, he said. Further, wherever necessary, the Reserve Bank of India will issue directions to banks for initiation of insolvency proceedings against borrowers for specific defaults, so that the momentum towards effective resolution remains uncompromised.
“It is expected that the revised prudential framework for resolution of stressed assets will sustain the improvements in credit culture that have been ushered in by the efforts of the Government and the Reserve Bank so far, and that, it will go a long way in promoting a strong and resilient financial system in India,” Das said.
The Supreme Court order came on a petition filed by the central bank challenging the Allahabad High Court order, which had asked it and the finance ministry to treat the power sector NPAs separately as their woes were mostly driven by external factors.
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