Supreme Court Order On Stressed Assets May Delay Debt Resolution Process: ICRA
The Supreme Court's decision to scrap the Reserve Bank of India's February 12 circular will delay the ongoing debt resolution process, according to ICRA.
The February 12 circular removed discretion with banks on resolution on stressed accounts by requiring them to compulsorily implement a resolution plan in a time-bound manner or refer the borrowers under Insolvency and Bankruptcy Code (IBC) 2016 for resolution.
In terms of impact on asset quality and profitability for banks, ICRA in its earlier reports have mentioned that the total estimated debt impacted because of the circular was Rs 3.8 lakh crore across 70 large borrowers of which Rs 2 lakh crore across 34 borrowers was in the power sector. "Further, 92 per cent of this debt was classified as non-performing by banks as on March 31, 2018 and banks have made provisions of over 25-40 per cent on these accounts and, hence, should not impact the reported asset quality of profitability numbers, however the resolution process, which was expected to be expedited, may get delayed," said Anil Gupta, Vice President & Sector Head - Financial Sector Ratings, ICRA.
Despite quashing of the circular, banks will continue to have an option to refer such defaulting borrower under IBC, in case the resolution plans fail.
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