The RBI governor has said that Reserve Bank of India (RBI) will issue a revised circular for resolution of stressed assets following the Supreme Court verdict striking down its February 12,2018 circular as ultra vires which means that the RBI had gone beyond its powers in issuing the circular.
The Supreme Court had said that the RBI cannot issue a blanket direction but upheld its power to issue instructions on specific companies.RBI governor said that the apex court had in fact upheld the power vested in the RBI under Section 35AA and Section 35AB.
Section 35AA and Section 35AB of the Banking Regulation Act,1949 were introduced in May 2017 to add more teeth to the RBI’s fight to tackle the issue of bad loans in the system.
Section 35AA authorises the RBI to issue directions on initiation of insolvency in case of a default while section 35AB deals with RBI’s powers with respect to the issue of resolution of stressed assets.
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.