Former Reserve Bank of India Governor Urjit Patel has revealed that the Central Government’s move to dilute a new bankruptcy law resulted in the disagreement between Prime Minister Narendra Modi and the Central Bank, which subsequently resulted in Patel resigning from the RBI, a Bloomberg report has revealed.
According to the report, an RBI-issued circular in February 2018 that forced banks to immediately classify those borrowers who did delayed payments as defaulters. Others classified as defaulters included those who barred defaulting company founders from trying to buy back their firms during insolvency auctions, and push them into bankruptcy if a resolution timeline wasn’t met.
Patel, who led the RBI between September 2016 and December 2018, felt that the centre has lost enthusiasm for the llegislation in the middle of the year he left the central bank.
Patel made the claims in his book, which is expected to be in the market soon. “Instead of buttressing and future-proofing the gains thus far, an atmosphere to go easy on the pedal ensued. Until then, for the most part, the finance minister and I were on the same page, with frequent conversations on enhancing the landmark legislation's operational efficiency."
The former RBI governor’s book offers a direct glimpse at what happened between the Centre and the RBI at the time, which subsequently led to the Supreme Court striking down the RBI circular from February 2018. “The decision mademade the insolvency regime vulnerable, possibly brittle," Mr Patel wrote, warning of subsequent changes risk reversing gains from efforts to clean one of the world's largest bad-loan piles.
“Patel's successor Shaktikanta Das in June 2019 eased rules to give lenders 30 days to review a delinquent account and a further 180 days to implement a resolution plan, loosening the previous timeline. It also lifted the deadline to push defaulters into bankruptcy,” the Bloomberg report added.
