Art & Culture
- Sexual Harassment Charges against Chief Justice of India Ranjan Gogoi
- All You Need to know about Electoral Bonds
- Electoral Bonds controversy
- NaMo TV controversy
- General Elections 2019
- RBI Governor bats for a Permanent Status to Finance Commission
- PM Modi’s Mission Shakti Speech & Model Code of Conduct
- Sadhvi Pragya Thakur’s latest Controversy
- Rafale deal document controversy
- Should SC Judges be under RTI ambit?
- Supreme Court Judgement on Tainted Candidates
- VVPAT verification
Governance & Social Justice
- Candida Auris : Drug- resistant fungi
- Candida auris infection
- Healthcare System for India, Difference in USA & European healthcare model?
- Lateral Entry in Civil Services explained
- Model policy for Women in Police
- NIRF India Rankings 2019 declared
- Quality Assurance Scheme
- Sex on false promise of marriage is rape
- Survey 2019 Ambitions Beyond Growth report by UNESCAP
- World Health Statistics Overview 2019 report on Life Expectancy
- World Press Freedom Index 2019
- Supreme Court compensation order on Bilkis Bano case
- WHO guidelines on physical activity for children under 5 years of age
- Global Talent Competitive Index 2019
- Algeria Political Crisis
- EU’s new Copyright Law, Will it change Web Worldwide?
- India Pakistan Kartarpur Corridor Talks
- India to Become NATO Ally?
- Japan Starts a New Era
- Julian Assange Arrested
- Sudan Political Crisis
- Trump designates Islamic Revolutionary Guard Corps of Iran
- United Nations Has to Pay India $38 Million
- US labels Revolutionary Guard of Iran a terror organisation
- US Mexico border wall controversy
- Why is UAE Important for India?
- Why is Chile Important for India?
- India Pakistan Conflict De-escalation Mechanisms
- India suspends cross LoC trade with Pakistan
- What is Arab Spring 2.0?
- India to stop buying Oil from Iran
- Trump withdraws from UN arms treaty
- Asian Development Outlook 2019
- China’s growth after slowdown
- Foreign Investment in India
- India’s 20th Livestock Census
- India’s transition to Renewable Energy from conventional sources
- Indian Army Builds The Longest Bridge of India Over Indus In Leh
- India Energy Modelling Forum by NITI Aayog & USAID
- National Common Mobility Card launched
- Rise and fall of Private Airlines in India
- Rise in Global Crude Oil prices & weakening Rupee
- Slowdown in Industrial Growth & rising Inflation
- Supreme Court order on EPFO
- Supreme Court quashes RBI’s 12 February Circular on NPA
- What are Junk Bonds?
- What is Fixed Maturity Plans?
- What is GDP deflator? Is it more comprehensive compared to WPI and CPI?
- What is Trader’s Credit Card Scheme?
- What is Wholesale Price Index?
- 1st Bimonthly Monetary Policy review – April 2019
- National Rubber Policy 2019
- Sensex hits 7 months high, History & Functions of Bombay Stock Exchange
- Supreme Court orders RBI on RTI
- What is Dedollarisation?
- Asian Tea Alliance
- Pepsico vs Farmers Issue
Defence & Security
Science & Technology
- Dhanush Artillery Guns
- Combat Casualty Drugs
- The Indian Museum of the Earth (TIME)
- EMISAT Satellite Launched
- Faster Adoption & Manufacturing of Hybrid & Electric
- First Ever Image of a Black Hole
- India to Buy MH60 Romeo Helicopters
- Nepal and Sri Lanka Launch Their First Satellites Raavana 1 & NepaliSat-1
- Nirbhay Missile Successfully Tested
- High Bacteriophages in Ganga River
- Army invokes Emergency Powers for Missile Deal
- Cell Based Meat
- INS Imphal Guided Missile Destroyer
- Draft Indian Forest Act 2019
- Gujarat Fishermen’s victory in US Supreme Court
- Humpback Mahseer Fish included in Critically Endangered list by IUCN
- India Cooling Action Plan (ICAP)
- Jammu & Kashmir Environment Issues
- Madras High Court order on Chennai Salem Highway
- Monkey declared Vermin in Himachal Pradesh
- Neelakurinji Flower under Severe Threat
- Solar eWaste
- Special Postal Stamp on Ice Stupas released
- State of Global Climate report 2018
- What is Green Finance Ecosystem?
- Wind turbines are impacting ecology in Western Ghats
- All about Wild Food Plants
Spice of the Month
- GS 3 || Economy || Banking & Financial Sector || RBI
Why in news?
- The central bank’s controversial ‘February 12 circular’ — which tightened the framework for the resolution of stressed assets — has been struck down by the Supreme Court.
“February 12 circular”
- Through a notification issued on February 12, 2018, the RBI laid down a revised framework for the resolution of stressed assets, which replaced all its earlier instructions on the subject.
- The circular went into effect on the same day that it was issued, and all existing schemes for stressed asset resolution were withdrawn with immediate effect. These included –
- Framework for Revitalising Distressed Assets,
- Corporate Debt Restructuring Scheme,
- Flexible Structuring of Existing Long Term Project Loans,
- Strategic Debt Restructuring Scheme (SDR),
- Change in Ownership outside SDR, and
- Scheme for Sustainable Structuring of Stressed Assets (S4A).
- All these schemes allowed more lenient terms of resolution than the February 12 circular, which specifically said that the resolution process must begin from day one of the default.
- The circular introduced a new one-day default norm —
- “As soon as there is a default in the borrower entity’s account with any lender, all lenders — singly or jointly — shall initiate steps to cure the default”.
- The circular was ostensibly intended to stop the “evergreening” of bad loans — the practice of banks providing fresh loans to enable timely repayment by borrowers on existing loans.
- 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, lenders were required to file an insolvency application.
- The RBI warned banks that not adhering to the timelines laid down in the circular, or attempting to evergreen stressed accounts, would attract stringent supervisory and enforcement actions.
- The government had earlier asked the RBI to make sector-specific relaxations in the timeline for the implementation of the circular.
- The circular introduced a new one-day default norm —
- Several companies from the power and shipping sectors had challenged the circular, arguing that the time given by the RBI was not enough to tackle bad debt.
- Power producers, for instance, had argued that the RBI’s ‘one-size-fits-all’ approach was impractical since the sector was having to confront external factors that were beyond its control, and which made an early revival difficult for them.
- These factors included the unavailability of coal and gas, and problems arising out of the failure of state governments to honour power purchase agreements.
- The total debt impacted by the circular was estimated at Rs 3.8 lakh crore across 70 large borrowers, including Rs 2 lakh crore across 34 borrowers in the power sector.
- As of March 31, 2018, 92% of this debt had been classified as non-performing, and banks have made provisions of over 25-40% on these accounts..
Supreme Court order
- The Supreme Court held the February 12 circular “ultra vires as a whole” — essentially meaning the RBI had gone beyond its powers — and thus “of no effect in law”.
- The order provides immediate relief to companies that have defaulted in repayments, especially those in the power, shipping and sugar sectors.
- Many financial sector experts argued that the verdict could delay the process of stressed assets resolution, which had of late picked up pace.
- Since banks will have the choice of devising resolution plans or going to the National Company Law Tribunal under the IBC, the urgency that the RBI’s rules had introduced in the system could be impacted.
- Voiding of the February 12 circular is credit negative for Indian banks. The circular had significantly tightened stressed loan recognition and resolution for large borrowers.
- But with the voiding, this may now have to be watered down.
- The resolution of stressed loans impacted by the circular will be further delayed as the process may have to be started afresh.
- Quashing of the ‘February 12 circular’ issued by the RBI could undo credit discipline in the banking system. Analyze.