RBI to seek EC nod for replacing quashed Feb 12 circular with new guidelines

The Reserve Bank of India (RBI) might reach out to the Election Commission (EC) before releasing its new set of guidelines to banks that would replace its February 12 circular that the Supreme Court quashed last week.

The new set of guidelines will come into operation soon.

“The matter pertaining to the issuing a circular does not relate to elections in any way. But the Election Commission does have a remit over any new announcement. The RBI, therefore, will seek the EC’s permission before issuing the new circular,” a senior government official told Moneycontrol.

Moneycontrol had earlier reported that in the absence of the February 12 circular, previous restructuring programmes like Sustainable Structuring of Stressed Assets or S4A may be brought back.

"S4A was the one that was operational before the February 12 circular was issued. So technically that's the one that should get implemented. But let's see what the RBI says," the official quoted above said.

The EC’s Model Code of Conduct prohibits announcement of new schemes or projects and also grants of new reliefs after the announcement of elections. The Model Code of Conduct became operational from March 10 and will continue till the end of the Lok Sabha elections.

As reported earlier by Moneycontrol, the apex court's order quashing RBI's circular will not impact the government's power to resolve the bad loan crisis. The government might authorise the RBI to refer companies to the Insolvency and Bankruptcy Code on a case-to-case basis.

The Supreme Court ruling by Justice Rohinton Fali Nariman and Justice Vineet Saran had said that the RBI needed to seek directions from the government before sending companies to the bankruptcy code on a case-by-case basis, as laid down under Section 35AA.

The February 12 circular affected 157 accounts, each with outstanding debt of at least Rs 2,000 crore, and totalling more than Rs 12 lakh crore.