Reserve Bank sticks to its guns on February 12 circular 

The change in leadership has not effectively resulted in change of Reserve Bank of India’s (RBI) stance over its February 12 circular.

Published: 14th March 2019 08:09 AM  |   Last Updated: 14th March 2019 08:09 AM   |  A+A-

RBI

RBI (File | Reuters)

By Express News Service

NEW DELHI: The change in leadership has not effectively resulted in change of Reserve Bank of India’s (RBI) stance over its February 12 circular. The central bank on Wednesday said that stressed companies have no resolution plan.As per an RBI notification on ‘Resolution of Stressed Assets — Revised Framework’ on February 12, 2018, banks were asked to classify even a one-day delay in debt-servicing as default, formulate a resolution plan within 180 days of default, and if still unresolved by the end of the 180-day period, refer the case to National Company Law Tribunal (NCLT) under insolvency proceedings. Bankers claimed that this norm would lead to about Rs 1.75 crore worth of loans to the power sector turn into NPAs.

While the RBI did not changed its stance on the circular, power companies moved the Allahabad High Court, challenging the constitutional validity of the circular. The Allahabad High Court rejected their plea, following which these companies approached the Supreme Court. On September 11, the Supreme Court transferred all petitions moved by power, sugar and shipping firms in various courts across the country to itself.

On February 6 this year, the power companies had told the top court that the February 12 circular was based on a “one-size-fits-all” approach, without taking into consideration factors such as the reasons for non-payment.In its submission in SC on Tuesday, the RBI rejected this allegation and maintained that neither the RBI nor the banks take such an approach. They instead take note of the individual problems of the companies under each sector and decide accordingly, the RBI counsel told the court.

“The sector issues may be pertinent. When the banks restructure such loans, all issues of the sector are taken into consideration. But there were many ways of resolving. The RBI circular nowhere asks to proceed one way or other,” he said.

The banking regulator also lashed out at the challengers of the circular and said that the problems in the respective sectors had not cropped up overnight. “If they had reached an agreement with the banks as they claim, they could have approached the NCLT and informed it that they were confident of finding a way. It would have been up to the NCLT to decide on that,” he said.

The banking regulator’s counsel also said that if the companies were ready with a plan, they should place it before the court and the debtors could have not been given infinite timelines. “Let them place the plan before the court. The banks are here and they can consider it. We can give 15-30 days,” the counsel said.

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