Reserve Bank of India Governor Shaktikanta Das on Thursday said the central bank will issue a revised circular about the resolution of stressed assets, PTI reported. This comes two days after the Supreme Court quashed an RBI circular issued in February 2018 that directed banks to classify a loan account as stressed if there was even a day of default.

“The court has said that power of RBI under Section 35AA has to be exercised in certain manner,” Das said. “The validity of Section 35AA of the Banking Regulation Act, 1949, stands and henceforth we have to comply with the direction of Supreme Court and act accordingly.”

Section 35AA empowers the central government to authorise the central bank to issue directions to any banking company or companies to initiate insolvency resolution process in respect of a default under the provisions of the IBC.

“In light of Hon’ble Supreme Court order, the Reserve Bank of India will take necessary steps, including issuance of a revised circular, as may be necessary, for expeditious and effective resolution of stressed assets,” Das said in a statement issued by the RBI. “The RBI stands committed to maintain and enhance the momentum of resolution of stressed assets and adherence to credit discipline.”

In February 2018, the RBI put out a circular on classification of non-performing assets that required banks to refer any account with a loan of more than Rs 2,000 crore to bankruptcy court if it is not resolved within 180 days of a default. The decision caused panic for many companies, in particular those in the power sector.

A bench of Justices Rohinton Fali Nariman and Vineet Saran on Tuesday declared the circular unconstitutional and ultra vires while hearing a batch of petitions challenging the circular.

A Standing Committee on Energy tabled a report in the Parliament last year which said: “Although the new guidelines have been termed as harmonised and simplified generic framework, yet they are far from being so. The Committee are of the opinion that the coinage of restructuring in resolution plan is hollow without having any serious meaning or business which only reflects the blurred vision of (the) RBI in understanding and appreciating the problems.”