The Supreme Court judgement on quashing the RBI's February 12, 2018 circular, mandating banks to recognise defaults on day one and invoke insolvency process, is in tune with law. However, this means that RBI would have little say in IBC, going forward. Though the banks will continue to refer defaulting borrowers to IBC, the quashing of circular means that it is no longer mandatory for banks to complete resolution process within specified period.
The judgement was a great relief for the aggrieved companies as most of the NPAs were in the power, sugar and shipping sector which were majorly impacted due to changes in government policies etc. There would now be a scope for debt restructuring or bilateral settlement with lenders.
The worrying factor is that ever-greening and delay in recognising bad loans had led to pile up bad loan of Rs. 10 trillion in banking sector. The fear of being taken to bankruptcy was necessary for some borrowers to change the old mindset that repayment of loans is bank's problem.