24.6 C
California
Friday, October 23, 2020

‘Huge Implications for Banking System’: RBI Urges SC to Lift Stay on Accounts’ Classification as NPAs

A man checks his phone outside the Reserve Bank of India (RBI) headquarters in Mumbai. (REUTERS/Francis Mascarenhas/Files)

On September 3, in a respite to stressed borrowers, the Supreme Court had directed that accounts not declared NPAs as of August 31 should not be classified as such until further orders.

  • IANS New Delhi
  • Last Updated: October 10, 2020, 2:47 PM IST
  • FOLLOW US ON:

The Reserve Bank of India has urged the Supreme Court to lift the across-the-board stay on classification of non-performing asset (NPA) till further orders as it has huge implications for the banking system

In a fresh affidavit filed in the apex court, the RBI said: “It is humbly submitted that this hon’able court had given an across-the-board stay on classification of any account as NPA till further orders. If the stay is not lifted immediately, it shall have huge implications for the banking system, apart from undermining the regulatory mandate of the Reserve Bank of India.”

On September 3, in a respite to stressed borrowers, the Supreme Court had directed that accounts not declared NPAs as of August 31 should not be classified as such until further orders.

On October 3, in an affidavit, the Centre had informed the court that any account becoming non-performing even due to the bank’s or any other delay need not suffer from being labelled as NPA.

Justifying the lifting of the stay on NPAs, the RBI cited its July 2015 circular aimed at reflecting the true and fair position of the accounts of banks so that the financial assets (which are public assets) will be accurately reflected in the books of accounts of the lenders.

“The classification of a loan account as NPA, based on the record of recovery, actually enables the lenders to follow the regulatory guidelines with regard to income recognition and provisioning. Every regulatory forbearance has its trade-offs in terms of adverse incentives and unintended consequences”, said the RBI in the affidavit.

“It is further prayed that the interim order dated September 4, 2020 restraining classification of accounts into Non-Performing Accounts in terms of the directions issued by the RBI may kindly be vacated with immediate effect,” said the RBI.

The Centre also emphasised that it is not possible to revise its decision to waive interest-on-interest for loans up to Rs 2 crore, wherein the government would bear the cost for MSME loans and personal loans.

“This decision by the government to provide additional relief to a large segment of borrowers has addressed the primary prayers of the petitioners,” the Centre said.

On the aspect of sector-specific relief instead of a monolithic resolution framework sought by reals estate and power sectors, the RBI said such prayers deliberately obfuscate the fact that resolution framework gives complete discretion to the lending institutions and borrowers to arrive at resolution plans tailored to the specific requirements of sector subject.

The RBI cited its September 7, circular, which provides for separate thresholds for 26 sectors, including power, real estate and construction. In respect of those sectors where the sector-specific thresholds have not been specified, lending institutions have been permitted to make their own internal assessments.

The RBI said that sectors such as power and real estate were already stressed even before the coronavirus pandemic on account of various factors pertaining to sector-specific problems. “Nonetheless, it is submitted that the travails of the realty sector cannot be solved through banking regulations. The banking regulations of the RBI cannot substitute the redressal of structural problems of the real estate sector,” the affidavit read.

The RBI response came after the top court earlier this week told the government that its response did not contain “necessary details” and asked the Centre and the RBI to bring on record the KV Kamath committee recommendations on debt restructuring.

Speak Your Mind

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Get in Touch

211FansLike
41FollowersFollow
41FollowersFollow

Recommend for You

‘Lock Up The Bidens’: Trump Picks Target For Final Stretch – His Opponent’s Family

Topline President Trump has begun focusing a disproportionate amount of his attention at campaign events on his Democratic opponent Joe Biden’s family in an...

WHO concerned about Europe’s coronavirus outbreak as ICU beds near capacity in some regions

A member of the medical staff treats a patient suffering from the coronavirus disease (COVID-19) at the Intensive Care Unit (ICU) of the Slany...

System Of A Down Singer Serj Tankian Talks Armenia-Azerbaijan Conflict, Response From Trump And Biden

Serj Tankian of System of a Down performs on October 6, 2018 in Teotihuacan, Mexico. (Photo by ... ...

Twitter Blocks Tweet From Trump Adviser Downplaying Masks

NEW YORK: Twitter blocked a post Sunday from an adviser to President Donald Trump who suggested that masks do not work to stop...

Positive Test Rate Dropping In NYC Hotspots, Mayor Says

Topline Test positivity rates are dropping in New York City neighborhoods that recently saw a sharp uptick in Covid-19 cases, according to Mayor Bill...

Related Articles

COVID-19 Reverses Craft Brewing’s Winners And Losers

Stowe, VT, Aug. 1, 2018 -- For years, the...

One Of The World’s Best-Known T-Rex Skeletons Could Sell...

Topline One of the most complete, largest and well-known Tyrannosaurus rex skeletons in...

Cabinet Approves Cyber Security Pact Between India and Japan

New Delhi: The Union Cabinet on Wednesday approved signing of a memorandum of cooperation...