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Order to banks to speed up loan recovery within our powers: RBI

LiveMint logoLiveMint 13-07-2017 Maulik Pathak

New Delhi: The Reserve Bank of India (RBI) on Thursday said its 13 June directive to banks to speed up their bad-loan recovery was well within its powers, and that its classification of sticky assets could not be challenged.

RBI lawyer Darius Khambata said this in the Gujarat high court during a hearing on Essar Steel Ltd’s petition challenging the directive.

The company, in its petition before the court, said it had initiated an effort with creditors to restructure its debt and was on the path of recovery when the central bank came up with the directive.

RBI directed banks to refer a dozen defaulters including Essar Steel to the National Company Law Tribunal (NCLT) for speedy resolution under the Insolvency and Bankruptcy Code (IBC). The debtors made up a quarter of the Rs10 trillion of stressed assets clogging up the Indian banking system.

ALSO READ : Essar Steel not singled out on bad loans, RBI tells Gujarat HC

Justice S.G. Shah, before whom the case is being heard, observed that neither the petitioner nor the respondents had so far submitted the original directive of the RBI or the supporting documents that were used as the basis while issuing the 13 June directive.

RBI’s criterion was that the total banking exposure of a company should be at least Rs5,000 crore and 60% of this should have turned non-performing by March 2016.

Essar Steel’s counsel Mihir Thakore, challenging this criteria, said the company should have been included in another category of 488 defaulters that were given six months to restructure bad debt or else be referred to the NCLT.

Thakore said in his submission that RBI’s directive had violated Article 14 of the Indian Constitution, which “provides for equality before the law and equal protection”.

Apart from RBI, State Bank of India and Standard Chartered Bank are also respondents in the petition that has been filed by Essar Steel.

RBI’s Khambata as well as SBI’s lawyers accused Essar Steel of suppressing facts before the court.

Essar Steel owed lenders some Rs45,000 crore in total of which Rs31,671 crore had turned into an NPA as of 31 March 2016.

Khambata said SBI had written to Essar Steel in February 2016, declaring its account an NPA. He claimed there was enough evidence to show Essar Steel was informed of insolvency proceedings to be initiated against it and had even agreed to go to the NCLT.

“Even if we classify Essar Steel in the second category which they are seeking, there is no way the RBI can stop State Bank of India or Standard Chartered to approach NCLT,” said Khambata.

He said the IBC overrides any previous contradictory notification, which in this case was the ongoing corporate debt restructuring process.

“Also, there is enough on records to show that Essar’s debt restructuring plan was not successful,” Khambata added. He said if Essar had a revival plan, it could present it before the NCLT, which is a judicial body, where it would get a fair chance for representation. SBI’s counsel told the court that under the IBC, any operational creditor who has lent Rs1 lakh or more can approach the NCLT.

Essar Steel’s counsel Thakore argued that negotiations had been under way with SBI, which leads a consortium of banks formed under Joint Lenders Forum (JLF), for debt restructuring when on 15 June, the RBI directed SBI to initiate bankruptcy proceedings against the company.

Thakore said there was no evidence to show the lenders’ forum had rejected the company’s restructuring plans.

Standard Chartered’s counsel Kamal Trivedi told the court that Essar Steel’s Mauritius-based subsidiary had borrowed about Rs3,400 crore from the bank, for which the company was a guarantor.

He said Essar Steel had in a communication dated 4 January informed Standard Chartered that it would repay the debt after 25 years by paying 1% interest. “We would not wait for 25 years for their offer of 1% interest. We informed Essar Steel on 24 January that we would approach NCLT,” Trivedi told the court.

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