RBI circular a welcome step; provides more freedom to bankers: IBA

The Reserve Bank's new circular for resolution of stressed assets is propelled by provisioning requirements and gives more freedom to bankers in taking decisions, Indian Banks' Association (IBA) Chairman Sunil Mehta said Saturday.

Two months after the Supreme Court struck down its February 12 circular, the Reserve Bank of India (RBI) Friday came out with a revised framework for resolving stressed assets wherein lenders have been given a 30-day period on whether to label an account as a non-performing asset.

"The RBI circular is a very welcome step. It has given more freedom to bankers to bring their own resolve and instead of directions, it (circular) has been propelled by provisioning requirements which will propel lenders to take timely decisions.

"... It has created a lot of clarity for various stakeholders," Mehta said on the sidelines of a seminar here.

Corporate Affairs Secretary Injeti Srinivas said in terms of the spirit and rigour, the latest circular is identical to the February 12 guidelines.

"Only thing is that now banks have more delegation (power) and there will be board level resolution policy and the discretion on whether you would like to take it (the case) to insolvency and bankruptcy proceedings or like to settle it outside that... (now) that decision is with the banks," he said.

He also noted that it is a very good replacement circular and given the Supreme Court's judgement that the RBI is not authorised to give a general circular, this is the best replacement circular we could have had.

The latest directions from the RBI retain the basic spirit 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.

The new norms provide a framework for early recognition, reporting and time-bound resolution of stressed assets, the central bank said in a notification on Friday.

In April, the Supreme Court struck down the RBI's February 12 circular for resolving bad loans under which a company could be labelled as a non-performing asset if it missed repayment even by a day, and banks were to find a resolution within 180 days or else the case had to be sent to bankruptcy courts.

The RBI circular, issued on Friday, would be applicable to all borrowers with exposure of Rs 2,000 crore and above to banks, financial institutions like Nabard, Exim Bank, Sidbi, small finance banks and NBFCs, with immediate effect.

To a query on whether the number of cases referred under the Insolvency and Bankruptcy Code (IBC) might come down with the issuance of the RBI circular, Srinivas said the Code has always been the last resort and not the first.

"If you can have a resolution outside the IBC framework, you should try that first... Empirical evidence show even today, 6,500 cases got resolved before admission. That means some sort of informal mediation has taken place and they have got resolved," he said.

According to him, even now people prefer to resolve it outside the IBC and only in cases where there is no other option but court-supervised process, then it would come to the IBC and that is a good development.

"Now, it is left to the banks. You will have an inter-creditor agreement and if 75 per cent of banks in terms of voting share or 60 per cent of banks in terms of numbers, they come to some sort of consensus then you can push through the resolution plan... It is a very good solution and we could not have asked for anything better," he noted.