Borrower behaviour will deteriorate

2 min read
  1. According to analysts,Supreme Court judgment striking down the Reserve Bank of India’s February 12 circular that dealt with the resolution of stressed assets will lead to deterioration of borrower behaviour and increase delays and litigation.
  2. On 12th February 2018,RBI had put out a circular on classification of non-performing assets that required (a)Banks to stipulate a one-day default rule on term loans.A borrower missing repayment even for a day will be treated as a defaulter and (b)Banks were required to immediately start working on a resolution plan for accounts over Rs 2,000 crore,which was to be finalised within 180 days.In case of non-implementation,banks were required to file an insolvency application.
  3. They have said that the apex court judgement will have no impact on resolution cases that have already been completed or are under process as they were done with the approval of the majority of the banks and not specifically because of the RBI’s circular.
  4. However, the resolution proceedings will be void in cases where it can be proved that the process was done based on the RBI circular.Further,the impact of the SC’s judgment,in most cases,will not be retrospective and will largely affect cases going for resolution in the future.