Much ado about nothing?


Dear Editor,

Recently, the Supreme Court struck down a Reserve Bank of India (RBI) circular. The February 2018 circular was intended to overhaul the earlier restructuring frameworks and to mandate banks and financial institutions to take action against accounts that had more than 20 billion (US$ 290 million) outstanding debt with no resolution plan implemented within 180 days from the occurrence of default.

The RBI had earlier come up with a first list, comprising twelve defaulters, and a second list, of twenty-five defaulters, against whom the banks were asked to start proceedings under the Insolvency and Bankruptcy Code (IBC). By way of the circular, the RBI, rather than getting into a case or sector-specific defaults, set out conditions under which banks were required to initiate proceedings. The RBI’s rationale for the issuance of the circular was public interest and to drive a behavioural change in the credit system. However, there were practical challenges faced by various stakeholders, especially in certain sectors like power that were reeling under a default situation for reasons beyond their control.

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