IL&FS case: RBI, NCLAT spar over who takes call on banks

By: |
Published: March 20, 2019 2:45:45 AM

Last week, the RBI brought to the Supreme Court’s notice that despite a leeway provided by its interim order, none of the petitioners (corporate defaulters) from a variety of industries like power, shipping and sugar managed to come up with any resolution plan that could be considered by banks.

IL&FS case: RBI, NCLAT spar over who takes call on banksIL&FS case: RBI, NCLAT spar over who takes call on banks

Last week, the Reserve Bank of India (RBI) stood firm before the Supreme Court, defending its February 12 circular which is aimed at imparting efficiency to the process of resolving stressed loan accounts of corporates. On Tuesday, the central bank took its determined bid to fully safeguard its role as the regulator of banking companies further, by urging the National Company Law Appellate Tribunal (NCLAT) to modify its two orders issued in February, which directed banks and financial institutions not to declare the accounts of the beleaguered infrastructure-financing firm IL&FS and its over 300 group firms as NPAs.

RBI counsel Gopal Jain insisted that no order can be passed restraining banks from complying with the prudential norms issued under the RBI Act and the banking regulation Act.

In response the tribunal said the RBI should not seek to ‘prohibit’ it from doing things in the interest of resolution of the insolvent conglomerate.

“We have not prohibited you (from declaring the assets as NPA), we have just said that you need our permission before doing so. Please don’t make it a prestige issue. If the affected lenders have not moved the NCLAT, why is the RBI before us? You can regulate a bank, but can’t prohibit an appellate tribunal,” the bench said.

Jain said the central bank moved the intervention before the appellate tribunal only on the issue of “asset classification.”
The RBI submitted that preventing banks from following its prudential norms — the latest master circular of which was issued on July 1, 2015 — “shall have far-reaching overall repercussions and cascading effects on the banking sector of the country and the interest of the depositors could be jeopardised”.

READ ALSO | Pilots warn Jet Airways: Pay salaries by month end or we will stop flying from April 1

The NCLAT had on February 11 categorised the subsidiaries of IL&FS Group companies into three categories — Green, Amber and Red — on the basis of their debt-servicing abilities. Green firms can meet all debt obligations, Amber firms can meet a part of it, but the Red firms can’t meet any debt obligations. The tribunal had said that entities classified as ‘Green’ can continue servicing debt obligations, while others would wait until a resolution plan is finalised.

On February 25, the bench further observed: “We make it clear that due to non-payment of dues by the IL&FS or its entities including the ‘Amber Companies’, no financial institution will declare the accounts of IL&FS or its entities as NPA without prior permission of this appellate tribunal”. The order has offered moratorium on repayment of loans regarding the accounts of IL&FS and its over 300 group companies.

In its plea, the RBI further said, “It is pertinent to note that while the reasons for financial stress could differ among borrowers, the nominal principles governing the resolution of the stressed assets are uniform across various sectors. The banks’ recognition of financial stress on their books, and provisioning for such financial stress, needs to be sector-agnostic.”

The NCLAT has scheduled the RBI’s plea for further hearing on March 29.

Last week, the RBI brought to the Supreme Court’s notice that despite a leeway provided by its interim order, none of the petitioners (corporate defaulters) from a variety of industries like power, shipping and sugar managed to come up with any resolution plan that could be considered by banks.

The RBI’s February 12 circular stipulates a one-day default rule on term loans — a borrower who misses repayment even for a day will be treated a defaulter and banks need to finalise a resolution plan for defaults of over `2,000 crore within the next 180 days, failing which insolvency proceedings will start.

“It is noteworthy that the additional period of 180 days also came to an end on 28.02.2019. Barring 2 or 3 cases which have been resolved and some more cases which have been referred to NCLT, the position remains the same,” the RBI told the apex court.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.