A year on, RBI sticks to guns on ‘February 12 circular’

Soon after Piyush Goyal took over the interim charge of the finance ministry for a second time, he met the chiefs of Public Sector Banks (PSB).

Published: 10th February 2019 08:28 AM  |   Last Updated: 10th February 2019 08:28 AM   |  A+A-

Express News Service

MUMBAI: Soon after Piyush Goyal took over the interim charge of the finance ministry for a second time, he met the chiefs of Public Sector Banks (PSB). After the meeting, among other things, Goyal pointed out that Rs 2.8 lakh crore was recovered since the ‘big bank NPA clean-up process’ started, of which  Rs 1 lakh crore was recovered in the first three quarters of this fiscal.

The Insolvency and Bankruptcy Code (IBC), which put an end to many long-winding loan restructuring and resolution processes, and the ‘February 12 circular’ of the Reserve Bank India (RBI), which forced the banks to recognise a default even if it is just a day past the deadline, have been game changers in the bad loan recognition and resolution process.

There have been several attempts and lobbies to get the RBI to amend its circular in this one year, and many vexatious suits to put the IBC process to test. Fortunately, the RBI has stuck to its resolve to wield the stick. “At the moment, there is no proposal to modify the February 12 circular,” RBI Governor Shaktikanta Das told reporters at the post-policy press conference on Thursday. The NPA recognition norms have been one of the contentious issues that created tensions between the finance ministry and the RBI under former governor Urjit Patel.

“Recognition of stressed assets significantly improved following the RBI’s circular on February 12, 2018, which eliminated previous schemes for restructuring. In our opinion, this simplified recognition and associated provisioning for stressed assets,” said an S&P note issued soon after Patel’s resignation. It has to be seen if the issue once again crops up in the RBI’s central board meeting scheduled later this month.

“What do industries do when dues are not paid in time, including the state-owned Discoms and public sector firms? If Discoms haven’t paid vendors on time, should the vendors be penalised with a default tag? ” Goyal asked financial services secretary, when he met industry leaders for a post-budget interaction in Mumbai on Friday. Perhaps the PSUs should be disciplined to release payments in time, instead of seeking exemption, observers suggest.

Case in point

Observers point out the quickness with which promoters of Jet Airways and bankers are working out a resolution, trying to bring in equity after a default, which would have taken its own sweet time under the earlier framework. The February 12 circular forced banks to recognise stress the moment a client missed payment and work out a resolution within 180 days

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