NPA resolution norms to be issued
The RBI will issue a new set of guidelines for resolution of bad loans within the next three-four days, replacing 2018 circular that was reversed by the Supreme Court, governor Shaktikanta Das.
The court had on April 2 struck down the stringent RBI circular declaring it ‘ultra vires,’ issued on February 12, 2018, for resolving bad loans, under which a company could be labeled an NPA if it missed repayment for even a day. Banks asked to find a resolution within 180 days or else it should be sent to bankruptcy courts.
Under the February 12 framework, banks asked to disclose defaults of even of a day and to find a resolution plan within 180 days in case of the large account of Rs 2,000 crore and above, failing which, it would be sent for bankruptcy. Power sector companies, which was affected the most by the circular, argued that their outstanding loans of Rs 5.65 lakh crore (as of March 2018) were a result of factors beyond their control such as unavailability of fuel and cancellation of coal blocks by the apex court/government and non-payment by state-run.
GMR Energy, Rattan India Power, Association of Power Producers, Sugar Manufacturing Association from Tamil Nadu and a shipbuilding association from Gujarat shifted different courts against the circular. The petitioners had objected that applying a 180-day limit to all sectors of the economy without going into the unique problems faced from each sector would treat unequals equally and would be arbitrary and discriminatory, and therefore, violative of Article 14 of the Constitution.
The Supreme Court order came as a response to a petition filed by the central bank challenging the Allahabad High Court order which had asked it and the Finance Ministry to treat the power sector NPAs separately, as external factors mostly drove their woes.