RBI governor Shaktikanta Das. (Mint)
RBI governor Shaktikanta Das. (Mint)

RBI to issue revised circular on bad loan resolution: Shaktikanta Das

  • Committed to enhancing momentum of resolution of stressed assets, adherence to credit discipline, says Shaktikanta Das
  • RBI will use all tools of infusing liquidity, including open market operations and forex swap, says the RBI governor

Mumbai: The Reserve Bank of India (RBI) will issue a revised circular for resolution of stressed assets after its 12 February 2018 norms were struck down by the Supreme Court earlier this week, RBI governor Shaktikanta Das said on Thursday.

The RBI will take steps in light of the court order, including issuance of a revised circular, for expeditious and effective resolution of stressed assets, Das said after announcing the first bi-monthly policy of FY20.

“The RBI stands committed to maintain and enhance the momentum of resolution of stressed assets and adherence to credit discipline," he said.

The order of the Supreme Court mandates RBI to exercise its powers under Section 35AA of the Banking Regulation Act in respect of specific defaults by specific debtors, Das said. The powers of RBI, he said, under Section 35AA and other sections of the Act are not in doubt at all.

“What basically the Supreme Court has said is that the powers of RBI under Section 35AA have to be exercised in a particular manner and the validity of the Section stands and henceforth we have to comply with the directions of the Supreme Court in this regard and act accordingly," said Das.

The Supreme Court had on Tuesday quashed RBI’s 12 February circular that had set strict norms for bad loan resolution, easing concerns of some debt-laden companies and threatening to upend India’s fledgling bankruptcy process. The RBI circular directed banks to refer defaulters to bankruptcy courts if they were unable to find a resolution plan within 180 days for stressed accounts where the outstanding amount was more than 2,000 crore.

The governor said corporates have the right to take the central bank to court as it is always the democratic right of any individual or corporate entity to challenge the decision of any authority in the court of law and the RBI cannot be an exception to this.

The central bank has been undertaking wider stakeholder consultations and its decisions are taken on that basis, Das said.

“You would have seen that over the years, before a decision is taken, a draft discussion paper or a draft circular is always placed on the RBI website and then a decision is taken. It has to be appreciated that there are some regulatory aspects where considering the criticality of these aspects, it is not possible for the RBI to place it in the public domain and seek comments. These are cases where the RBI has to act based on its own wisdom and based on internal consultations with stakeholders and experts," he explained.

Das reiterated that it shall be RBI’s effort to ensure that there is adequate liquidity in the system. The currency swap is an additional instrument which RBI has added to its toolkit to deal with the liquidity infusion, he said.

“We will use all tools of infusing liquidity, including open market operations, currency swap... We will use all these instruments, depending on requirement and depending on other relevant factors. We have already infused enough liquidity into the system," said Das.

On the status of the Bimal Jalan Committee report, formed to review the existing economic capital framework of the RBI, the governor said he has spoken to Jalan and the committee would require a few more days to finalize the report.

“The deliberations are in advanced stage and I have not gone into the details of their meetings and what they are deliberating because it’s the committee’s prerogative. I think they will take a few days more, but the sense I have from the chairman of the committee is that the discussions are in a very advanced stage," said Das.

The monetary policy committee (MPC) of the RBI reviewed the macroeconomic developments and the outlook over and voted by a 4:2 majority to reduce the policy repo rate by 25 basis points (bps) and maintain a neutral monetary policy stance by 5:1 majority.

The MPC noted that there is a further loss of pace in global economic activities since its last meeting in February 2019.

“Moreover, the slowdown appears to be synchronized across advanced economies and some major market economies and well. This assessment is also reflected in the monetary policy stances of their central banks which have either eased or paused," said Das.

Inflation remains low in major advanced and emerging economies though crude oil prices have risen on production cuts by major producers and supply disruptions among exporters.

“Equity markets have generally rallied, bond yields have eased in some advanced economies and they have slipped to negative territories. In currency markets, the US dollar has traded with an appreciating bias whereas emerging market currencies have softened," said Das.

Meanwhile, the MPC said that the inflation path during 2019-20 is likely to be shaped by several factors.

First, low food inflation during January-February will have a bearing on the near-term inflation outlook.

Second, the fall in the fuel group inflation witnessed during February policy has become accentuated. Third, consumer price index (CPI) inflation excluding food and fuel in February was lower than expected.

Fourth, international crude oil prices have increased by around 10% since the last policy, and fifth, inflation expectations of households as well as input and output price expectations of producers polled in the Reserve Bank of India’s surveys have further moderated.

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