Priority At NCLT For Distressed Dozen: RBI’s ‘Desire’ Not Direction
RBI never intended to give any directions to any judicial authority, Deputy Governor Mundra says.
The Reserve Bank of India (RBI) never intended to give any directions to any judicial authority, Deputy Governor SS Mundra clarified in an interview to BloombergQuint on Tuesday.
"It was by general way of mentioning that RBI would request or urge the system to take these cases on priority," said the central banker.
Mundra’s comments followed the Gujarat High Court’s observation that the RBI cannot direct or advise a judicial or quasi-judicial authority in any manner whatsoever. The high court said this while hearing Essar Steel Ltd.’s plea against the insolvency proceedings initiated against it by lenders.
The RBI in its June 13 circular directed banks to initiate action against 12 large accounts including Essar Steel under the Insolvency and Bankruptcy Code, and said that the National Company Law Tribunal (NCLT) would accord priority to these.
"It was more a desire of RBI rather than RBI giving any direction. It was more about the way language was used and it was quickly corrected," Mundra said.
Acting on the high court’s direction, the RBI later deleted the line which asked the NCLT to accord priority to these accounts on July 8.
Bad Loan Resolution: Should RBI Be Directly Involved?
On whether the RBI should be involved directly in resolution of bad loans, Mundra said that the regulator is not intervening on a case-to-case basis and decisions are being taken based on a framework.
"When credit is sanctioned, there is a wide framework which RBI has put in place. For instance, what can be the single borrower exposure, what is the group exposure etc. Now you can use all these examples and say RBI is directly involved in sanctioning," Mundra said while trying to make the point that the regulator's intervention in resolution follows the same principle.
Similarly for resolution, RBI has put in place a wide framework. (We have said) that these are the criteria and if certain triggers are breached, then it needs to go for resolution. It is not a very significantly different thing from laying down a regulation.SS Mundra, Deputy Governor, RBI
Mundra added that the decision to push bad loan accounts for resolution under IBC will put in place a time-bound process which did not exist in any of the previous tools provided by the RBI.
Various tools were given. In these tools also there were defined timelines. But if nothing happens after that defined timeline, then what? That question gets answered through the IBC. That difference brings all the players to behave in a different manner than they have in the past.SS Mundra, Deputy Governor, RBI
Mundra, who retires as deputy governor on July 31, has seen his term being dominated by asset quality concerns across the banking sector. Between October-December 2015, then RBI Governor Raghuram Rajan and Mundra spearheaded an asset quality review across banks which revealed a pile of bad loans which was more than double of what banks had declared at that time. As on March 31, 2017, gross non-performing assets had jumped to Rs 7.7 lakh crore from Rs 3.5 lakh crore in July-September 2015.
When asked whether the NPA cycle has peaked, Mundra said that most of the known stock of bad loans has been recognised.
"Power sector is still a sector which can throw up some challenges," said Mundra, while adding that the known problems are being dealt with but there could still be some surprises.