Supreme Court order has not taken away any powers from RBI: Shaktikanta Das

RBI Governor Shaktikanta Das on April 4 said that Supreme Court's judgement, declaring its circular on bad loan resolution as "ultra vires", has not taken away any powers from the banking regulator.

"Basically, Supreme Court has said that the powers of RBI under Section 35AA have to be exercised in a particular manner. The validity of Section 35AA stands and henceforth, we have to comply with the directions of the SC in this regard and act accordingly," said Das.

He added that the SC order mandates RBI to exercise its powers under Section 35AA “in respect of specific defaults by specific debtors”.

Das also said that banks, as financial creditors, have the liberty to approach the National Company Law Tribunal (NCLT) in cases where there is a default. He clarified that all major cases that were referred under the Insolvency and Bankruptcy Code (IBC) remain unaffected with the order.

On April 2, the SC struck down the central bank's directions on the resolution of bad loans under the IBC, saying it is beyond the banking regulator's authority to issue such a mandate.

The RBI circularhad made it mandatory for banks to ensure that a resolution plan is in place within 180 days of a loan default for any account with exposure of Rs 2,000 crore or more. Failing this, such accounts were to be referred for insolvency proceedings under the IBC.

The apex court said the reference under IBC has to be on a case-specific basis and with the authorisation of the central government. RBI has clarified that directions “which are in respect of debtors generally” would be ultra vires of that section.

RBI to issue revised circular

Das said that the central bank will come up with a revised circular to ensure expeditious and effective resolution of stressed assets.

“The RBI stands committed to maintain and enhance the momentum of resolution of stressed assets and adherence to credit discipline,” Das said, adding that there will not be any undue delay in issuing a revised framework.

In its monetary policy report released on April 4, the RBI stated that resolution of stressed assets under the IBC, among other factors, is expected to improve bank credit off-take and support investment and aggregate demand.