New Delhi: The Supreme Court order quashing a Reserve Bank of India circular on resolving bad debt will provide relief to power companies and lenders as well as flexibility to restructure debts but will slowdown bankruptcy proceedings, experts said Tuesday.
The Supreme Court on Tuesday quashed RBI’s February 12 circular, which prescribed rules for recognising one-day defaults by large corporates and initiating insolvency action as a remedy. Vishrov Mukerjee, Partner, J Sagar Associates said after the Supreme Court judgment, the RBI may have to issue revised guidelines/circulars for the restructuring of stressed assets. “There is also a question mark over existing processes which may have been completed/nearing completion,” he said.
“However, with the threat of IBC proceedings mitigated, it will give some breathing space to power companies and lenders as well as flexibility to restructure debts in a manner which ensures continuity and value maximization for lenders as well as power companies.”
Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas, termed the ruling as a major development that shows how “proactive” the judiciary has been. “Whilst it’s too early to say but if banks voluntarily still invoke IBC – the practical impact will be minimal,” he said. ICRA senior vice president Sabyasachi Majumdar said the Supreme Court decision is likely to result in a further slowdown in the already tardy pace of resolution of stressed assets in the power sector.
“This apart, the resolution process is in any case subjected to regulatory risks as exemplified in the case of the Prayagraj Power asset, where the regulator has given a recent directive for a discount in PPA tariff while allowing the shareholding change approval for the same,” he said.
Srikanth Vadlamani, Vice President, Financial Institutions Group, Moody’s Investors Service, said 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,’ he said.
‘The resolution of stressed loans impacted by the circular will be further delayed as the process may have to be started afresh”. (PTI)
