RBI to decide on required action: FM on SC order

New Delhi, April 2 (IANS) Within hours of Supreme Court voiding the RBI's time bound debt resolution circular of last February, a cautious government said the central bank would have to see what is required to be done for recoveries of bank loans in the absence of this directive.

"RBI will now decide with the present condition of the market as to what needs to be done in the absence of the February 12 circular", Finance Minister Arun Jaitley said at a press conference.

Earlier, Finance Ministry officials declined to comment on the order and its implications on the banks and their NPAs. They also refused to comment on alternative loan resolution mechanisms and the fate of those cases that have been referred to NCLT by banks under directions from RBI, but not yet admitted.

Earlier in the day Supreme Court quashed February 12, 2018 RBI circular that said lenders have to provide a resolution plan within 180 days for large accounts of Rs 2,000 crore and above. The bench headed by Justice R.F. Nariman said: "We have declared the RBI circular ultra vires."

This circular was made applicable to all loan accounts over Rs 2,000 crore and also abolished all existing debt restructuring schemes for stressed accounts. Effectively, it left IBC as the only mechanism to deal with stressed accounts.

Post the February 12 circular, all pre-existing categorization of standard stressed assets - SDR, S4A, CDR restructuring, and flexible restructuring under 5:25 scheme stood abolished, leaving IBC as the only resolution mechanism.

As per the RBI circular, companies which were unable to implement a resolution plan by August 27, 2018, were scheduled to be referred to NCLT by September 11.

This circular had a bearing mainly on the power companies and also affected companies in the textile, sugar and, shipping sectors.

Tasked with a key job of helping recover corporate loans, the NCLT has helped resolve insolvency and bankruptcy proceedings involving more than Rs 80,000 crore in 2018 and the kitty was expected to swell beyond Rs 1 lakh crore in 2019 with several big-ticket default cases pending.

So far NCLT has cleared resolution of Bhushan Steel which is now owned by Tata Steel. Similar resolutions include those of Electrosteel, which is now with Vedanta, Monnet Ispat & Energy (JSW Steel) & AION Capital. The Essar Steel resolution has already paved the way for ArcelorMittal at a selling price of Rs 42,000 crore.