Even though Raghuram Rajan, former RBI governor, co-wrote the influential 2003 book, “Saving Capitalism From the Capitalists,” it has fallen upon his successor at the Reserve Bank of India to actually attempt such a thing. By the looks of it, Urjit Patel has a hard slog ahead.
For now, the governor of India’s central bank can breathe a sigh of relief. His most audacious plan yet for cleaning up a $191 billion bad-debt mess jumped over a crucial legal hurdle on Monday. Yet the judgment of the Gujarat High Court in Essar SteelBSE 0.41 % India Ltd. vs. The RBI is so unflattering to the banking regulator and so portentous of the looming battle with business families that Patel might wonder if the victory is worth celebrating.
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The RBI in June asked Indian lenders to initiate bankruptcy proceedings against 12 large corporate accounts, which collectively comprise a quarter of their soured assets. Essar Steel, controlled by the billionaire Ruia family, objected to its inclusion in that list of the distressed dozen, and termed the central bank’s directive as “hostile, arbitrary and unreasonable.”
Over this Essar argued that while it does have $5 billion in non-performing debt, the steel business is coming out of a multi-year funk, plus it’s negotiating a restructuring deal with lenders. At this juncture, handing over the management to a tribunal-appointed insolvency professional would shut down operations and unnecessarily make matters worse.
The court dismissed Essar’s plea, leaving it to the company-law tribunal to decide if it wants to admit Essar into bankruptcy, or give it more time to negotiate with creditors.
