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  Business   In Other News  05 Apr 2019  New NPA framework soon

New NPA framework soon

THE ASIAN AGE. | FALAKNAAZ SYED
Published : Apr 5, 2019, 1:13 am IST
Updated : Apr 5, 2019, 1:13 am IST

Banks had to treat a company as a defaulter even if it missed the repayment schedule by a day.

Shaktikanta Das
 Shaktikanta Das

Mumbai: With the Supreme Court quashing the Reserve Bank of India’s February 12, 2018 circular on resolution of stressed assets as ultra vires, the central bank would be coming out with a revised circular on resolution of stressed assets. Speaking to reporters at the first bi-monthly monetary policy review of this fiscal on Thursday, RBI Governor Shaktikanta Das said the central bank will issue a fresh circular to banks on how to deal with non-performing assets (NPAs).

Das said that the Supreme Court order struck down the February 12 circular regarding resolution of stressed assets but the validity of section 35AA of the Banking Regulation Act remains intact. He said that the Supreme Court’s order did not cast any doubt on the powers of the RBI either under section 35AA of the Banking Regulation Act or under any other section.

 

“What the Supreme Court has said was that power of RBI under Section 35AA has to be exercised in certain manner. The validity of section 35AA of the Banking Regulation Act 1949 stands and henceforth we have to comply with the direction of Supreme Court and act accordingly,” Das said.

“In the light of the Supreme Court order, the RBI will take necessary steps, including issuance of revised circular as may be necessary for expeditious and effective resolution of stressed assets,” he added.

The RBI Governor also said that the regulator stood committed to maintaining and enhancing the “momentum of resolution of stressed assets and adherence of credit discipline” in the economy.

 

“We are considering a revised circular as may be necessary. I will not elaborate further. There will not be any undue delay.”

The Feb 12 circular had directed lenders to refer loan accounts over Rs 2,000 crore under the Insolvency and Bankruptcy Code (IBC) if they were not resolved within 180 days of default. Banks had to treat a company as a defaulter even if it missed the repayment schedule by a day.

Section 35AA and Section 35AB of the Banking & Regulation Act were introduced in May 2017 to add more teeth to the RBI's fight to tackle the issue of bad loans in the system. Section 35AA authorises the RBI to issue directions on initiation of insolvency in case of a default while section 35AB deals with RBI's powers with respect to the issue of resolution of stressed assets. The RBI’s 12 February 2018 circular, asking banks to take such a step after giving 180 days for putting in place a corporate turnaround plan, was issued taking powers from this section.

 

Tags: reserve bank of india, shaktikanta das