While India mocked RBI, it received a booster shot to clean up the country’s worst economic mess — Quartz

In the aftermath of the government of India’s disruptive move to demonetise two high-value currency notes late last year, the Reserve Bank of India (RBI) has come under fire.

While it has been ridiculed for the dozens of tweaks it has made to the rules vis-a-vis demonetisation, of late the central bank has also received flak for the delay in accounting for the old notes deposited by citizens. In fact, for the first time ever, it has failed to release the balance sheet for the week ended June 30, the day it officially closes its accounting year. This evasive move, reportedly an after-effect of demonetisation, drew further criticism. Some on Twitter have called the RBI a “Shakespearean Tragedy,” others labeled it “India’s biggest non-performing asset (NPA).”

However, on Monday (July 17), social media commentators seemed to have largely missed a landmark court ruling that could be the proverbial shot in the arm for the bank regulator in its endeavour to clean up India’s nearly Rs10 lakh crore stressed-asset problem.

In its ruling, the Gujarat high court (HC) allowed the banks to continue with the bankruptcy proceedings against Essar Steel, which owes Rs45,655 crore to various lenders. Essar, along with 11 other companies, accounts for nearly 25% of the gross NPAs of Indian banks. This judgment marks a big win for the central bank and cannot be ignored amidst the brickbats it is receiving.

A landmark judgment

On June 13, the RBI directed the banks to take the top 12 large defaulters to the bankruptcy courts. Each of these accounts have an outstanding loans of over Rs5,000 crore. At least 60% of the total amount owed has been classified as non-performing assets by banks at the end of March 2016.

It’s the first time that the RBI has directed banks to take the defaulters to court. The move comes about a month after the government made changes to the Banking Act, giving the RBI more powers to deal with NPAs. Now, the banking regulator has the…

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