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MOSL: EXPERT SPEAK (FINANCIAL-BANKS)-Supreme Court strikes down the RBI’s 12th Feb circular

EXPERT SPEAK (FINANCIAL-BANKS): Supreme Court strikes down the RBI’s 12th Feb circular; Resolution of stressed assets to be further delayed; recoveries to remain muted

 

R K Bansal, (MD & CEO Edelweiss ARC)

Mr. R K Bansal, MD & CEO, Edelweiss ARC, has decades of professional experience and knowledge of banking, finance and economics. Mr. Bansal has nearly 30 years of experience in IDBI where he worked in various functional areas such as treasury, investments, finance and accounts (CFO), project appraisal, resources, recovery, retail banking etc. He has been the chairman of corporate debt restructuring (CDR) empowered group and serves as a director of Asset Reconstruction Company (India) Ltd. He is a chartered accountant and CAIIB by qualification. 

We hosted Mr R K Bansal – MD & CEO, Edelweiss ARC – to discuss the latest judgment by the Supreme Court (SC) quashing the RBI’s 12th Feb circular. The discussion revolved around a range of topics, including (a) concerns/drawbacks in the circular, (b) implications for the lenders post the SC judgment, (c) potential changes by the RBI now and (d) broader issues concerning the resolution of stressed power assets. Key takeaways from the call: 

Why did the RBI come out with the 12^th Feb circular?

The RBI introduced the circular as the earlier restructuring/resolution schemes like SDR/S4A/CDR were ineffective in finding a resolution to these stressed assets. Moreover, the banking system was using these schemes to delay the recognition of bad loans without having any concrete resolution in sight. Hence, the RBI decided to primarily use the IBC platform for the resolution of stressed assets.  

Concerns/ drawbacks with the circular  

• Earlier restructuring schemes were slightly stringent in terms of (a) restructuring the payment period/interest rates, (b) classifying the debt into sustainable and unsustainable portion and (c) requiring approval of 75% of the lenders to initiate the resolution mechanism.
• The two major concerns with the 12^th Feb circular were (a) requirement of 100% approval of the lenders to implement the resolution plan within 180 days and (b) 20% payment to maintain the account standard.