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RBI Power Stays

Anand Adhikari     April 15, 2019

The Supreme Court has given relief to stressed companies, including those in power and infrastructure, by blocking the Reserve Bank of India's (RBI's) controversial circular of February 12 last year.

The circular, issued under Section 35AA, had asked banks to follow a six-month deadline to resolve a stressed company where there has been even a single day default. But the RBI's power under the said Section stays in respect of specific defaults by specific debtors. The earlier circular was a blanket rule for all companies with over Rs 2,000 crore exposure. The RBI will now likely issue a new circular or direction that can be used to restructure a loan. Banks need to be careful and act on time in case they see stress in a company.

So, what happens to cases that were being taken up under the RBI's circular? Bankers say defaulters have little choice but to fall in line. They have enough powers to take the cases to logical conclusion.

Jet Airways is a classic case moving forward despite the February circular becoming irrelevant. The bankruptcy code also offers lenders enough power to restructure a stressed company or take it to liquidation.

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