India's banking regulator will draft new guidelines for bad loans after the Supreme Court revoked its Feb 12 order


  • After the Supreme Court struck down the central bank’s February 12th circular on bad loans, the pressure was on the RBI to reframe the order within its authority and ensure momentum in insolvency proceedings did not wane.
  • At a press conference following the RBI’s decision to slash rates again, Governor Shaktikanta Das confirmed that the central bank would formulate new guidelines for bad loan resolution.
  • Das added that pending resolution cases with the NCLT would not be affected as they had been referred to the bankruptcy tribunal prior to the apex court’s decision.
After the Supreme Court struck down the central bank’s February 12th circular on bad loans, many thought this would derail the process of debt resolution.

The pressure was on the Reserve Bank of India (RBI) to reframe the order within its authority and ensure momentum in insolvency proceedings did not wane.

At a press conference following the RBI’s decision to slash rates again, Governor Shaktikanta Das confirmed that the central bank would formulate new guidelines for bad loan resolution.

"Supreme Court order has not taken away any power from the RBI. The powers are still vested with the RBI. It has to be exercised in a certain manner. We will exercise the power which the Parliament has given us and see that resolution is done faster" Das said.

This was in line with earlier comments from Finance Minister Arun Jaitley who sought to allay concerns that the decision-making powers of the RBI with respect to bankruptcy cases had been compromised. Jaitley had said that the central bank would come up with a “fresh set of ideas”.

Das added that the ‘major cases’ would not be affected as they had been referred to the bankruptcy tribunal prior to the apex court’s decision.

The February 12th circular that was struck down had given banks a 180-day period for the resolution of bad loans over ₹20 billion and required banks to recognise loans of at least ₹50 million as having gone bad even in the event of a one-day default.

The rationale behind the circular was to tighten the noose on cash-strapped companies and force banks to account for bad loans immediately

As a result of the SC verdict, around 75 large borrowers will also be let off the hook. Furthermore, India’s banks won’t have to categorise around ₹1.8 trillion worth of loans to 34 coal-based thermal power plants as “non-performing”. The relief also extends to ₹840 billion worth of loans to companies in other sectors such as sugar, shipping and infrastructure.

It will have to be seen if and how this will change after the new guidelines from the RBI.


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