Poor val­u­a­tions, over-bur­dened NCLT may prod govt to re­lax time limit

Financial Chronicle - - FRONT PAGE -

THE gov­ern­ment is con­sid­er­ing a pro­posal to ex­tend the time limit for bankruptcy res­o­lu­tion process by 180 days over and above the ini­tial 180 days under the In­sol­vency and Bankruptcy Code (IBC). The Cen­tre feels the cur­rent time­line is prov­ing in­suf­fi­cient to ar­rive at a res­o­lu­tion.

The fi­nance min­istry is also sug­gest­ing that 75 per cent of bankers agree­ing to a res­o­lu­tion — at present it is 100 per cent — is enough for pass­ing the res­o­lu­tion in the com­mit­tee of cred­i­tors (CoC). So, ef­fec­tively the min­istry is call­ing for a CoC vot­ing cap.

The main pur­pose is quick­en­ing the process and go for the right kind of value cre­ation. The changes be­ing pro­posed will def­i­nitely help corporates, bankers and ev­ery­body else in­volved, said sources.

The cur­rent law al­lows a max­i­mum 270 days for res­o­lu­tion — an ini­tial 180 days and 90 days of ex­tra time on top of that. Top fi­nance min­istry of­fi­cials said this pe­riod might be fur­ther re­laxed by 180 days. So, it will be 180 days for the res­o­lu­tion process and an­other 180 days to be awarded by the Na­tional Com­pany Law Tri­bunal (NCLT) sub­ject to the pro­ceed­ings of the case. In short, if changes are in­cor­po­rated, it will be a full year for any res­o­lu­tion of NPA.

Mean­while, min­istry of cor­po­rate af­fairs is re­view­ing the changes in the IBC. These new changes if in­cor­po­rated will give NCLT the power to ex­tend in­sol­vency res­o­lu­tion by 180 more days. The fi­nance min­istry will send its pro­pos­als to MCA for in­cor­po­ra­tion af­ter de­tail dis­cus­sions.

Of­fi­cials said af­ter the Re­serve Bank of In­dia (RBI) scrapped many debt res­o­lu­tion mech­a­nisms such as strate­gic debt res­o­lu­tion (SDR), cor­po­rate debt res­o­lu­tion (CDR) and Scheme for Sus­tain­able Struc­tur­ing of Stressed As­sets (S4A), there is stress on the NCLT and banks under the cur­rent time­line. The RBI said ac­counts with ag­gre­gate debt of more than Rs 2,000 crore will have to be taken to NCLT within 15 days if a res­o­lu­tion plan does not bear fruit in 180 days.

The RBI re­quires banks to im­ple­ment a res­o­lu­tion plan within 180 days and in case of non-im­ple­men­ta­tion, lenders are re­quired to file an in­sol­vency ap­pli­ca­tion. The RBI’s lat­est data shows that the pub­lic sec­tor banks could re­cover a to­tal of only Rs 15,786 crore in 2016-17 and 2017-18 till De­cem­ber 31 through all re­cov­ery chan­nels, in­clud­ing IBC. The to­tal NPA of PSBs stands at Rs 8 lakh crore. The RBI has pre­pared three lists of de­fault­ers who are in NCLT for res­o­lu­tions. Not a sin­gle big case has been re­solved so far.

In fact, in the last four fis­cals — 2014-15, 201516, 2016-17 and 2017-18 till De­cem­ber 31 — all 21 pub­lic sec­tor banks in ag­gre­gate could re­cover only Rs 29,343 crore out of Rs 2.72 lakh crore of bad loans, as per the RBI data.

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