One day Default Clause for Banks too rigourous

Former deputy governor SS Mundra has suggested that the RBI take a relook at its February 12 order mandating that banks treat delay in payments by borrowers even by a day as default and begin work on how to prevent that becoming a bad loan.

He said though the intention of the regulator is correct, the one-day default along with decisions like doing away with the joint lenders’ forum should be re-considered. “The circular is well meaning, but something’s need to be relooked, such as the one day default (clause). Also, forums like JLF (joint lenders’ forum) is still needed, although RBI has done away with it,” Mundra told an industry conference.

In a circular to banks released on February 12, RBI changed the framework for bad loan resolution tightening disclosures by banks and funnelling all existing resolution mechanisms to the bankruptcy courts. Banks now have to disclose defaults even if interest repayments are overdue by just one day and frame a resolution plan within the next 180 days. If banks cannot resolve a case of a default within 180 days, the corporation has to be resolved under bankruptcy laws. But Mundra questioned disproportionate noise made by the power sector which has sought High Court’s help to quash the order.