The Gujarat High Court has restored the Reserve Bank of India's power to
decide the period after
which a bad loan can be called a non-performing asset (NPA). The bench of Chief
Justice Bhaskar Bhattachrya and Justice J B Pardiwala said that the Section
2(1)(o) of Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest (SARFAESI) Act is held unconstitutional.
The High Court also observed that Parliament was
wrong in taking the power to decide NPA guidelines away from the RBI. Before
the amendment in 2004 to the Act, the RBI was the regulator for the banking,
non-banking institutions and securitization agencies for deciding the period
after which the loans can be treated as the NPA.
Till 2004, RBI had set the NPA period for banks at
90 days, and at 180 days for Non Banking Financial Companies. But with the
amendment, the financial institutions became free to have their own regulations
for NPA. The NPA period was decided separately by each firm.
The High Court's ruling came on petitions filed by
several defaulters of banks and NBFCs who had questioned every institution
deciding its own NPA period, calling it violation of right to equality.
Comments