"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.
In case of defaults of Rs 2,000 crore or more, a resolution plan would have to be implemented within 180 days, and if the resolution plan was not implemented, then the banks would have to file for insolvency proceedings against the defaulters.
The circular directed banks unable to agree upon a resolution plan with any defaulter within 180 days to drag the defaulter into a time bound insolvency process.
The petitioners argued that the RBI's order was a one-size-fit-all approach that was not nuanced.
Commenting on the development, Finance Minister Arun Jaitly said, "RBI will now decide with the present condition of the market as to what's to be done in the absence of the Feb 12 circular".
Under the nullified RBI circular, banks would have had to finalise a resolution plan for the airline by June if they wanted to avoid insolvency proceedings. The startling pace at which bad loans started to pile up in the first nine months of the 2018 fiscal despite the massive clean up after the RBI's asset quality review in December 2015, had led the regulator to scrap all restructuring schemes - CDR, SDR, S4A or 5/25 - and nudge banks to hasten resolution of stressed assets.
The top court said the RBI only had the power to use the Insolvency Code-Section 35AA-in this manner if the centre authorised it, and if it specified which businesses were to qualify. The government had earlier asked the RBI to make sector-specific relaxations in the timeline for the implementation of the circular.
The circular was issued under Section 35AA of the RBI Act that deals with "stressed assets". These factors included the unavailability of coal and gas, and problems arising out of the failure of state governments to honour power purchase agreements.
The order provides immediate relief to companies that have defaulted in repayments, especially those in the power, shipping and sugar sectors.
Power companies had moved Allahabad High Court against the RBI circular, which had refused to grant them interim relief last August.
RBI governor Shaktikanta Das said the circular will be issued without any "undue delay", saying the central bank "stands committed to maintain the momentum of resolution of stressed assets and credit discipline". "But, with the voiding, this may now have to be watered down", he said.
However, another rating agency, Crisil Ratings, said banks' asset quality will not be materially impacted as bulk of the stressed loans have already been recognised and the judgment gives banks more flexibility and time to resolve stressed assets on their own.
"However, Crisil said: "... a return to the pre-IBC era is not expected".