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Government may direct banks on bad loans' resolution

IANS  |  New Delhi 

In order to prevent whittling down of insolvency laws to post the Supreme Court's quashing the RBI's February 2018 debt resolution framework, the Finance Ministry may give directions to state-run banks to undertake sector specific resolution of their non-performing assets (NPAs or bad loans), a senior official source said on Wednesday.

"Yesterday (Tuesday) the Supreme Court said authorisation from the Central government is necessary for RBI to direct the insolvency process against stressed assets.

"Directions which can be issued to banks can only be in respect of specific defaults by specific debtors. So in a way, it will be the government which will direct the banks on the NPA resolution mechanism and this could be the way forward," the source said.

Section 35AA of the Banking Regulation Act gives power to the Central government to authorise the Reserve Bank of India (RBI) to direct any bank to initiate insolvency proceedings against a defaulter.

RBI's February 12, 2018, circular had said that the banks would have to seek resolution under the Insolvency and Bankruptcy Code (IBC) if a borrower fails to pay the due amount within a period of 180 days of first default. The circular was applicable for loans of Rs 2,000 crore or more, and was a general circular.

Several companies in the power, sugar, fertiliser and infrastructure sectors had objected to the circular's "one size fits all" approach.



(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, April 03 2019. 18:18 IST