Rating agency Moody’s on Tuesday said the Supreme Court’s decision to strike down the February 12, 2018 circular of the Reserve Bank of India (RBI) is ‘credit negative’ for Indian banks.

The apex court on Tuesday quashed RBI’s February 12 circular, which prescribed rules for recognising one-day default by large corporates and initiating insolvency action as the remedy.

“Voiding of the February 12 circular is credit negative for Indian banks,” said Srikanth Vadlamani, vice president, Financial Institutions Group, Moody’s Investors Service.

“The circular had significantly tightened stressed loan recognition and resolution for large borrowers. But, with the voiding, this may now have to be watered down,” he said.

IBC resolution

In the circular, the RBI had also withdrawn all the existing loan restructuring facilities like corporate debt mechanism and strategic debt restructuring, and left the Insolvency and Bankruptcy Code (IBC) as the only means for resolution of stressed assets.

Moody’s said resolution of stressed assets may now be delayed.

“The resolution of stressed loans impacted by the circular will be further delayed as the process may have to be started afresh,” Mr. Vadlamani said.