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SC orders status quo on RBI’s February 12 circular
News:
- Supreme Court halted insolvency proceedings against defaulter companies.
Important Facts:
- SC has issued stay order on RBI circulation asking banks to consider loan as a Non Performing Assets (NPA) even if repayment of loan is delayed by single day.
- If the cases are pending before National Company Law Tribunal (NCLT) after RBI circulation earlier, status quo will be maintained.
- Several concerns have been raised against the Supreme Court order as it will not benefit the companies in a long run, such as:
- Delay in resolution of stressed assets.
- Impeding process established under Insolvency and Bankruptcy code (IBC)
- Undermine investor confidence in bankruptcy process.
- Court order will not be able to cater structural issues associated with power companies.
- Structural Issues with Power Sector:
- Absence of price reforms.
- Unsustainable finance of Public sector power distribution companies.
- Fuel supply to power sector.
- Banks are happy as the reprieve order will help them delay the recognition of bad loans.
- However, Banks will not be able to gain much from resolution process unless these structural issues are sorted out.
- To resolve the structural issues government intervention is required, not Supreme Court orders.
