Why in news?
- The Allahabad High Court has decided to deny interim relief to power companies from the RBI’s February 12 circular.
- Click here to know more on the case.
What is the RBI's directive?
- The RBI circular sets a 180-day deadline for the resolution of all non-performing assets.
- It requires banks to finalise a resolution plan within this.
- This is in case of a default on large accounts of Rs 20 billion or more.
- Failing this, insolvency proceedings will have to be invoked against the defaulter.
- The assets would be taken to the National Company Law Tribunal (NCLT).
- The central bank also introduced the concept of a one-day default.
- Under this, banks have to identify incipient stress even when repayments are overdue by a day.
What is the petition?
- Nearly 70 large companies with a debt of around Rs 3.8 trillion would have to face Insolvency and Bankruptcy Code proceedings.
- Three-fourths of this debt pertains to a handful of power producers.
- As many as 34 power plants, with a combined capacity of 39 GW, have been identified as stressed assets.
- Power producers were not the only ones hesitant on submitting to the IBC process.
- The government and even the lenders, mostly public sector banks, were also not keen on implementing the RBI circular.
- They argued that the power sector’s problems had more to do with external factors.
Why is the Court's decision significant?
- It is RBI's discretion to decide whether any particular sector deserves regulatory exceptions.
- In this case, it has decided against granting any exception, which is a sound, rule-based approach.
- Any judicial intervention would have sent a wrong signal to other defaulters.
- They would have then started seeking judicial reprieve from the RBI’s circulars.
- So the high court has consciously avoided a precedent that could have been misused.
- It has done its bit by ensuring the RBI’s position as an independent regulator.
- It is not yet clear whether the power producers will move the Supreme Court.
- Till that happens, the RBI deadline stands and banks are bound to start IBC proceedings.
Source: Business Standard
