How RBI’s Feb 12 circular changed the way banks dealt with stressed assets

Come Tuesday, the Reserve Bank of India’s circular on resolution of stressed assets revised framework — commonly known as February 12 circular — will turn one. 

It was just one of the 192 circulars issued by the central bank last year. Yet, the anniversary bears significance. After all, the circular forced stressed companies to declare bankruptcy and was also a reason that added to the rift between Mint Road and North Block. 

“I was in the banking industry for 36 years,” says Ashwani Kumar, former chairman and managing director of Dena Bank. “But I don’t remember a single circular being as powerful as the one issued on February 12, 2018. According to the circular, even one-day default leads to NPA (non-performing asset).” Kumar retired from the government-owned bank in December 2017, two months before the controversial circular was put in place. 

Banks on the Brink
According to the circular, lenders had to classify a loan account as stressed if there was even a day of default. The bankers had to mandatorily refer all accounts with over Rs 2,000 crore loans to the National Company Law Tribunal (NCLT) or the bankruptcy court if they failed to resolve the problem within 180 days of default. Lenders, said the circular, had to file an insolvency application under the Insolvency and Bankruptcy Code 2016 within 15 days of th .. 

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