RBI red-flags SC cushion to banks
NEW DELHI: The Supreme Court’s attempts to get a consortium of six public sector banks to fund the stalled Amrapali housing projects faced stiff resistance from the Reserve Bank of India (RBI), with the banking regulator red-flagging the agreement terms which included a complete waiver on the loan being declared non-performing asset (NPA) in the wake of default or delay in repayment.
With the consortium in the last phase of sealing the deal to provide funds to the Amrapali Stressed Projects Investments Reconstruction Establishment (ASPIRE), a bench of justices UU Lalit and Bela M Trivedi directed the RBI to meet the court-appointed receiver senior advocate R Venkatramani on Wednesday and to sort out the objections in the presence of representatives from the consortium of banks.
“Whoever comes to meet the receiver should be the highest officer who is entitled to take decisions,” the bench said, adding, “After having the meeting with representatives of RBI and consortium of banks, the receiver shall file an appropriate report.”
Although the consortium represented by advocate Alok Kumar sought a direction that the RBI application should not delay or derail the consortium from proceeding, the bench noted that such a direction will not be necessary as the issue would be resolved before the next date of hearing on March 28.
The RBI application filed on March 4 objected to the order passed by the top court on August 13 last year specifying three comfort clauses put forth by the banks as a precondition to enter into a consortium agreement.
These banks included Bank of Baroda, Punjab National Bank, Punjab & Sind Bank, UCO Bank, State Bank of India, and Bank of India.
These conditions said that funds to Amrapali projects will be categorised under the priority funding sector with a reduced capital charge, status of funds given to ASPIRE projects would remain standard (without being declared NPA) in the event of default or delay in repayment, and thirdly, there would be no further external valuation of Amrapali assets on the economic viability of the projects.
Senior advocate KV Vishwanathan, appearing RBI, told the court that such conditions will set a “bad precedent” and will entail a serious cost to the depositors.
“All this funding can go under the extant rules prescribed by RBI. I do not know why the banks insisted on a blanket NPA to be given. Who will absorb the cost to the depositors in the event of a default or delay in repayment?”
Vishwanathan said, “Any masking of risk will impinge upon the transparency of books (maintained by banks) and protection of public money. This goes against the commercial wisdom of banks and will eventually put the interests of depositors in jeopardy which is not in the interest of the financial system.”
The bench said, “We cannot go back to square one. This order was passed seven months ago. Somebody has to finance projects for construction to go on as only then money can come in.”
At the same time, it added, “Since RBI is the chief banking regulator, we cannot wish away their application.”
Who will absorb the cost to the depositors in the event of a default or delay in repayment? KV VISHWANATHAN, Senior advocate