The government is considering various options to adequately empower the RBI to deal with banks' stressed assets under the Insolvency and Bankruptcy Code following the Supreme Court order, quashing February 12 circular of the central bank. February 12 circular on stressed assets had brought some discipline among bankers, and discretion with regard to the dealing of non-performing assets (NPAs) was done away with, sources said.
But, it was stiff and every sector was part of it, sources said, adding that the circular attracted a lot of criticism, including from a Parliamentary panel. Last month, the Supreme Court quashed the circular and termed it as ultra vires.
Against the backdrop of the Supreme Court order, the blanket provision of referring a loan defaulter to the National Company Law Tribunal (NCLT) under the IBC is no longer available. However, the RBI after consultation with the government can ask any bank to refer a stressed case to the NCLT as per the provisions of Section 35 AA of the Banking Regulation Act.
There is a need to have a balanced approach to deal with stressed assets, sources said, adding it cannot be left to the discretion of banks but there has to be some regulatory supervision. The government is keen to have a more robust framework with the oversight of the regulator to deal with NPAs under the IBC, sources said.
Even the Banking Regulation Act is being looked at with a view to strengthen the regulatory framework and not allow discretion of banks in dealing with large NPAs, sources added. Reserve Bank of India's February 12, 2018 circular had mandated banks to refer an NPA account for insolvency proceedings in case a resolution is not found within 180 days. This was for accounts where the outstanding dues were at least Rs 2,000 crore.
In a report last year, the government had favoured an additional 180 days to be provided for resolution of 34 stressed power projects with a view to avoiding potential value erosion of operating plants. The Supreme Court quashed the circular following a petition filed by around 70 stressed companies from the power, shipping and textiles sectors.
A Parliamentary panel was among the critics of the now impugned circular. "Although the new guidelines have been termed as a harmonised and simplified generic framework, yet they are far from being so," the Standing Committee on Energy said in its report tabled in Parliament last year.
"The committee is of the opinion that the coinage of restructuring in resolution plans is hollow without having any serious meaning or business which only reflects the blurred vision of the RBI in understanding and appreciating the problems. "The committee expects that clarity of thought and transparency in approach should be the guiding factor to streamline and strengthen the sector squirming under ineluctable hardships," it had said.
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