RBI to issue revised circular on NPA resolution before Lok Sabha election results

The Reserve Bank of India is expected to issue a revised circular over resolution framework of stressed assets before the results of the 2019 Lok Sabha election are declared. The revised circular is unlikely to attract any action on account of the Model Code of Conduct as the central bank’s monetary policy is out of its purview.

“The model code of conduct exempts RBI’s monetary policy. It is unlikely to attract any action if the RBI issues the revised (February 12) circular,” PTI quoted sources as saying.

The revised circular regarding NPA resolution is in the advanced stage and would be released before the election results are out, the news agency reported. The counting of votes for the 2019 Lok Sabha election is scheduled for May 23.

The RBI is looking into all the concerns raised by various stakeholders including banks and power sector companies and may look to tweak the circular without diluting it completely so that the momentum towards resolution of stressed assets is not affected, sources said.

Earlier this month, the Supreme Court had quashed the RBI circular on stressed loan recognition and resolution of large borrowers over Rs 2,000 crore. The apex court had termed the circular, issued on February 12, 2018, as ultra vires, or beyond the legal authority, to the provisions of the Banking Regulations Act and the RBI Act.

RBI’s February 12 circular had mandated banks to refer an NPA account for insolvency proceedings in case a resolution was not found within 180 days. This applied to accounts with outstanding dues to the tune of Rs 2,000 crore or more. As per RBI norms, an account is classified as a non-performing asset (NPA) if it is not serviced for 90 days.

The PTI report said various options are being explored for reforming the NPA framework. One of them is increasing the 90-day window by 30-60 more days before an account is classified as NPA, it said.

The RBI might also consider providing more time to repay the loans to the concerned entities, the report further said. This would help in reducing hardships faced by micro, small and medium enterprises (MSMEs) to some extent.

In a report last year, the government had favoured an additional 180 days to be provided for resolution of 34 stressed power projects with a view to avoiding potential value erosion of operating plants. The Supreme Court quashed the circular following a petition filed by around 70 stressed companies from the power, shipping and textiles sectors.

A parliamentary panel was among the critics of the now impugned circular.

“Although the new guidelines have been termed as a harmonised and simplified generic framework, yet they are far from being so,” the standing committee on energy said in its report tabled in Parliament last year.

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