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5) With Supreme Court quashing the circular issued by the RBI on resolution of bad loans recently, is the debt resolution mechanism of RBI compromised? Also discuss how these concerns can be addressed by the RBI?(250 words)

Topic: Separation of powers between various organs dispute redressal mechanisms and institutions./ Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

5) With Supreme Court quashing the circular issued by the RBI on resolution of bad loans recently, is the debt resolution mechanism of RBI compromised? Also discuss how these concerns can be addressed by the RBI?(250 words)

The hindu

Why this question:

The recent controversy surrounding the RBI related to the February circular and its quashing by Supreme court as attracted attention, the article discusses in detail the repercussions for the economy by such a move.

Key demand of the question:

The answer must provide for an assessment of the circular, under what circumstances it came to be criticized by the apex court, what were the benefits it was trying to bring. Special emphasis should be to comment on the credit discipline and debt resolution mechanism of RBI.

Directive:

DiscussThis is an all-encompassing directive – you have to debate on paper by going through the details of the issues concerned by examining each one of them. You have to give reasons for both for and against arguments.

Structure of the answer:

Introduction:

Brief upon the scenario of the circular and highlight the apex court’s verdict.

Body:

  • The answer must first discuss in detail the salient features of the Feb circular of RBI on resolution of bad loans. How it could have helped manage debts of the Banking system ? what were the outcomes?
  • Then move on to discuss how the circular aimed at undoing the credit discipline in the banking system- It had forced banks to recognize defaults by large borrowers with dues of over ₹2,000 crore within a day after an instalment fell due; and if not resolved within six months after that, they had no choice but to refer these accounts for resolution under the Insolvency and Bankruptcy Code.
  • Why the verdict ?
  • What needs to be done now ? – The RBI should study the judgment closely, and quickly reframe its guidelines so that they are within the framework of the powers available to it under the law.

Conclusion:

Conclude with necessity of reforms in RBI within the law limits.