SC orders status quo on RBI’s February 12 circular

SC orders status quo on RBI’s February 12 circular

 News:

1. Supreme Court halted insolvency proceedings against defaulter companies.

Important Facts:

2. 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.
3. If the cases are pending before National Company Law Tribunal (NCLT) after RBI circulation earlier, status quo will be maintained.
4. 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.

5. Structural Issues with Power Sector:

• Absence of price reforms.
• Unsustainable finance of Public sector power distribution companies.
• Fuel supply to power sector.

6. Banks are happy as the reprieve order will help them delay the recognition of bad loans.
7. However, Banks will not be able to gain much from resolution process unless these structural issues are sorted out.
8. To resolve the structural issues government intervention is required, not Supreme Court orders.