RBI confirms! No dilution in the February 12 circular on the resolution of assets under duress

Resolution of distressed assets: no dilution in the February 12 circular, says RBI

The Reserve Bank of India (RBI) reiterated Saturday that it was maintaining its position on all aspects of the revised framework on the resolution of stressed assets issued on February 12, 2018, in accordance with a notification from the RBI .

The banking regulator maintained its position on all aspects of the framework, as was consistently explained in its submissions, including the clarifications made at the monetary policy press conference adopted on 7 February this year, at which said the RBI.

In the circular of February 12, 2018, RBI had issued various instructions aimed at solving the problems of assets under duress in the economy, including the introduction of certain specific schemes at different times. With a view to the adoption of the 2016 Insolvency and Bankruptcy Code, the Reserve Bank has decided to replace the existing directives with a harmonized and simplified generic framework for the resolution of distressed assets.

The circular stipulates a default rule of one day for term loans. A borrower who lacks repayment even for one day will be treated as a defaulting party; banks must finalize a defect resolution plan of more than Rs. 2,000 crores in the next 180 days, failing which the insolvency process will be initiated.

Defending its circular of 12 February, the RBI reported on Thursday to the Supreme Court that none of the petitioners (failing companies) from various sectors such as energy, shipping and sugar could develop a resolution plan that could be considered by the banks. "It's obvious that they have no resolution plan," the RBI said, citing companies' room for maneuver under the September 2018 court order that lenders not act before other orders.

"As the case is pending and the Supreme Court has reserved its orders on this matter, the RBI will not comment on the details," said the banking regulator in a clarification of some reports.

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