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Revised norms on bad loans to buoy improvement in credit culture: RBI Guv

The new framework makes inter-creditor agreements mandatory and provides for a majority decision to prevail, he said

Press Trust of India  |  Pune 

Shaktikanta Das
Shaktikanta Das

RBI Saturday said revised guidelines to deal with stressed assets will sustain improvement in credit culture as it provides for additional provisioning, a strong disincentive for delay in starting resolution proceedings.

After the nullified the Reserve Bank's circular of February 12, 2018 for resolution of stressed assets, the central issued a revised 'Framework for Resolution of Stressed Assets' Friday.

The revised framework for resolving stressed assets by offering lenders a 30-day period to label an account an NPA but has withdrawn all other resolution methods.

The new directions retain the basic spirits of the February 12, 2018 circular as it mandates higher provisioning, bankruptcy options as well as do not allow any other resolution methods outside the new norms.

Speaking at the NIBM, at the 15th Annual Convocation of Post Graduate Diploma in Management, here, the RBI said the new guidelines provide a system of "strong disincentives" in the form of additional for delay in initiation of resolution or insolvency proceedings.

The new framework makes inter-creditor agreements mandatory and provides for a majority decision to prevail, he said.

Further, wherever necessary, the of will issue directions to banks for initiation of insolvency proceedings against borrowers for specific defaults, so that the momentum towards effective resolution remains uncompromised.

"It is expected that the revised framework for resolution of stressed assets will sustain the improvements in credit culture that have been ushered in by the efforts of the Government and the Reserve so far, and that, it will go a long way in promoting a strong and resilient financial system in India," Das said.

The order came on a petition filed by the central bank challenging the order, which had asked it and the to treat the power sector NPAs separately as their woes were mostly driven by external factors.

Power sector companies, which were 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 discoms.

GMR Energy, RattanIndia Power, Association of Power Producers, Independent Power Producers Association of India, from and a shipbuilding association from had moved different courts against the circular.

The petitioners had challenged the circular arguing that applying a 180-day limit to all sectors of the economy without going into the special problems faced by each sector would treat "unequals equally" and would be arbitrary and discriminatory, and therefore, violative of Article 14 of the Constitution.

First Published: Sat, June 08 2019. 19:45 IST