Circular on the resolution of stressed assets rejected by the Supreme Court

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By admin April 2, 2019 17:28

Circular on the resolution of stressed assets rejected by the Supreme Court The Supreme Court struck down as unconstitutional the Reserve Bank of India’s February 12, 2018 circular on the resolution of stressed assets. The notification: 1. Required banks to implement a resolution plan within 180 days, 2. Lenders were required to file an insolvency application in case of non-implementation. 3. Lenders to institute a board-approved policy for resolution of stressed assets. 4. Previously, lenders had the freedom to initiate the resolution process after 60 days of default. 5. Banks to start working on a resolution plan for accounts over Rs 2,000 crore immediately on default and finalise it within 180 days. 6. In case of failing they would be referred for insolvency proceedings under the Insolvency and Bankruptcy Act. 7. If a borrower delays in payment for even one day, it is treated as stress. 8. An account is classified as NPA only when the overdue amount stretches beyond 90 days. Read Also: –A Relief for Housing Projects in 34th GST Council Meeting

Why borrowers and lenders went to court?

Genuine cases: Companies have overdue payments from the Ministry of Roadways and State Electricity Boards due to slow working by government departments. It’s not the company’s fault. RBI’s logic
  • Many companies delay payments to banks
  • They earn income by investing the money that belongs to banks.
  • They wait till the 70th day or 80th day.
Why RBI did this?
  • To encourage prompt repayment of loans
  • To stop instances of deliberate delay in repayment by some borrowers
How bad loans were dealt with earlier?
  • Corporate Debt Restructuring
  • Strategic Debt Restructuring
  • Flexible Structuring of Project Loans
  • Scheme for Sustainable Structuring of Stressed Assets or S4A.
  • These schemes allowed banks to change rates for easier repayments.
  • Those schemes were misused by both borrowers and lenders.
  • The new framework for restructuring is not applicable to the micro, small and medium enterprises (MSMEs) with loans of Rs 25 crore or less.
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admin
By admin April 2, 2019 17:28