Year after historic circular, debate over RBI’s regulation making powers still mired in confusion

#ILANOMICS #RBI

The Reserve Bank of India’s circular issued on 12 February last year was one of the most important central bank circulars in recent years. It put an end to various loan restructuring schemes and required banks to take defaulters through the bankruptcy process. After years of kicking the can down the road, banks were forced to recognise non-performing assets.

The circular was issued as part of the direction making powers of the RBI. There is no doubt that it was critical to clean up banks’ balance sheets. However, the manner in which it was done put the focus on the lack of a proper regulation making process at the RBI.

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