Serious setback: on SC setting aside RBI’s ‘Feb. 12 circular’

 

 

 

Serious setback: on SC setting aside RBI’s ‘Feb. 12 circular’

Quashing of the ‘February 12 circular’ could undo credit discipline in the banking system
The Supreme Court order quashing(रद्द करने/अभिखण्डन) a circular issued(जारी किया) by the RBI on resolution(प्रस्ताव/संकल्प) of bad loans is a setback to the evolving(विकसित करने/उद्विकासी) process(प्रक्रिया) for debt resolution. The voiding of the February 12, 2018 circular could slow down and complicate(मुश्किल/पेचीदा) the resolution process for loans aggregating(एकत्रीकरण) to as much as ₹3.80 lakh crore across 70 large borrowers, according to data from the ratings agency ICRA. The circular had forced banks to recognise(पहचानना) defaults by large borrowers with dues of over ₹2,000 crore within a day after an instalment(किस्त) fell due; and if not resolved within six months after that, they had no choice but to refer these accounts for resolution under the Insolvency(दिवाला/शोध-अक्षमता) and Bankruptcy(दिवालियापन) Code. Mounting bad loans, which crossed 10% of all advances at that point, and the failure of existing(मौजूदा ) schemes such as corporate debt restructuring(पुनर्गठन), stressed(तनावग्रस्त ) asset(संपत्ति) resolution and the Scheme for Sustainable(सतत ) Structuring(संरचना) of Stressed Assets (S4A) to make a dent in resolving them formed the backdrop(पृष्ठभूमि) to this directive(निर्देश). The circular was aimed at breaking the nexus(मेल-जोल/सांठगांठ) between banks and defaulters, both of whom were content(सामग्री) to evergreen(सदाबहार ) loans under available schemes. It introduced a certain(कुछ/निश्चित) credit discipline — banks had to recognise defaults immediately and attempt(प्रयास) resolution within a six-month timeframe, while borrowers risked being dragged(घसीटा/सरकना) into the insolvency process and losing control of their enterprises if they did not regularise(नियमित ) their accounts. RBI data prove the circular had begun(शुरू करना/प्रारंभ करना) to impact(प्रभाव) resolution positively(सकारात्मक/स्पष्ट रूप में).

It is this credit discipline that risks being compromised(समझौता ) now. It is not surprising that international ratings agency Moody’s has termed the development as “credit negative” for banks. It is true that the circular failed to take into account the peculiarities of specific(विशिष्ट ) industries(उद्योग) or borrowers and came up with a one-size-fits-all approach. It is also true that not all borrowers were deliberate(जानबूझकर ) defaulters, and sectors such as power were laid low by externalities(आकार) beyond the control of borrowers. The RBI could have addressed these concerns(चिंताओं) when banks and borrowers from these sectors brought these issues to its notice. By taking a hard line and refusing(इनकार/मना करना) to heed representations(प्रतिनिधित्व/वर्णन), the RBI may only have harmed its own well-intentioned move. That said, it is now important for the central bank to ensure that the discipline(अनुशासन/शिक्षण) in the system does not slacken. The bond market does not allow any leeway to borrowers(उधारकर्ता) in repayment(चुकौती ), and there is no reason why bank loans should be any different. The RBI should study the judgment closely, and quickly reframe its guidelines so that they are within the framework of the powers available to it under the law. Else, the good work done in debt resolution(समाधान) in the last one year will be undone.

 

 

Important Vocabulary

1. Quashing(रद्द करने/अभिखण्डन)
Antonyms: crush, put down, quell, repress, squash
Synonyms: build up, compliment, encourage, let go, praise

2. evolving(विकसित करने
Antonyms: derive, emerge, expand, get, grow
Synonyms: leave, lessen, stop, decrease, diminish

3. Aggregating(एकत्रीकरण
Antonyms: amass, accumulate, amount, assemble, collect
Synonyms: detach, disconnect, disperse, dissipate, divide

4. Recognize(पहचानना)
Antonyms: admit, know, make, note, notice
Synonyms: : deny, forget, ignore, misinterpret, miss

5.Resolution(प्रस्ताव/संकल्प)
Antonyms: decision, settlement, verdict, aim, boldness
Synonyms: indecision, apathy, cowardice, fear, flexibility

6. Nexus(मेल-जोल/सांठगांठ)
Antonyms: center, connection, core, link, network
Synonyms: divorce, exterior, exteriority, outside

7. Begun(शुरू करना/प्रारंभ करना)
Antonyms: going, happening, initiated, proceeding, working
Synonyms: latent, prospective

8. Positively(सकारात्मक/स्पष्ट रूप में).
Antonyms: certainly, easily, emphatically, firmly, undoubtedly
Synonyms: doubtfully, questionably

9. Refusing(इनकार/मना करना)
Antonyms: decline, ignore, protest, rebuff, reject
Synonyms: accept, allow, approve, agree, consent

10. Repayment(चुकौती )
Antonyms: compensation, reimbursement, reparation, restitution, restoration
Synonyms: penalty

11. Resolution(समाधान)
Antonyms: decision, settlement, verdict, aim, boldness
Synonyms: : indecision, apathy, cowardice, fear, flexibility

12. Discipline(अनुशासन/शिक्षण)
Antonyms: control, development, education, method, practice
Synonyms: : agitation, ignorance, award, chaos, confusion

13. Externalities(आकार)
Antonyms: area, expanse, exterior, facade, face
Synonyms: : character, core, interior, middle, personality

14. Specific(विशिष्ट )
Antonyms: clear-cut, definite, definitive, different, distinct
Synonyms: ambiguous, careless, common, commonplace, equivocal

 

 

 

 

Credit To The Hindu News Paper

Quashing of the ‘February 12 circular’ could undo credit discipline in the banking system
The Supreme Court order quashing a circular issued by the RBI on resolution of bad loans is a setback to the evolving process for debt resolution. The voiding of the February 12, 2018 circular could slow down and complicate the resolution process for loans aggregating to as much as ₹3.80 lakh crore across 70 large borrowers, according to data from the ratings agency ICRA. The circular had forced banks to recognise defaults by large borrowers with dues of over ₹2,000 crore within a day after an instalment fell due; and if not resolved within six months after that, they had no choice but to refer these accounts for resolution under the Insolvency and Bankruptcy Code. Mounting bad loans, which crossed 10% of all advances at that point, and the failure of existing schemes such as corporate debt restructuring, stressed asset resolution and the Scheme for Sustainable Structuring of Stressed Assets (S4A) to make a dent in resolving them formed the backdrop to this directive. The circular was aimed at breaking the nexus between banks and defaulters, both of whom were content to evergreen loans under available schemes. It introduced a certain credit discipline — banks had to recognise defaults immediately and attempt resolution within a six-month timeframe, while borrowers risked being dragged into the insolvency process and losing control of their enterprises if they did not regularise their accounts. RBI data prove the circular had begun to impact resolution positively.

It is this credit discipline that risks being compromised now. It is not surprising that international ratings agency Moody’s has termed the development as “credit negative” for banks. It is true that the circular failed to take into account the peculiarities of specific industries or borrowers and came up with a one-size-fits-all approach. It is also true that not all borrowers were deliberate defaulters, and sectors such as power were laid low by externalities beyond the control of borrowers. The RBI could have addressed these concerns when banks and borrowers from these sectors brought these issues to its notice. By taking a hard line and refusing to heed representations, the RBI may only have harmed its own well-intentioned move. That said, it is now important for the central bank to ensure that the discipline in the system does not slacken. The bond market does not allow any leeway to borrowers in repayment, and there is no reason why bank loans should be any different. The RBI should study the judgment closely, and quickly reframe its guidelines so that they are within the framework of the powers available to it under the law. Else, the good work done in debt resolution in the last one year will be undone.

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