Bankers in a tizzy as RBI shortlists 12 cases for bankruptcy proceedings
The Reserve Bank of India’s (RBI) decision to refer large cases of stressed loans for bankruptcy proceedings has thrown bankers into a tizzy on how to start the process, signalling that the resolution process could be long drawn.
Bankers are awaiting the list of accounts from RBI despite having access to Central Repository of Information on Large Credits, a centralised database of large exposures.
“We have to move to NCLT (National Company Law Tribunal) and get going with the plan. Apart from the list, we are expecting some directions from the RBI, on things like whether a joint lenders’ forum will be called and so on,” said a head of mid-sized state-owned bank on the condition of anonymity.
NCLT is the arbitration authority for cases filed under Insolvency and Bankruptcy Code (IBC). RBI on Tuesday said 12 accounts representing about 25% of the gross bad loans in the banking system would be eligible for immediate reference for bankruptcy proceedings.
Banks are sitting on a stressed asset pile of close to ₹10 lakh crore; of this, gross bad loans account for ₹7.7 lakh crore,the rest being restructured loans.
An internal panel of the central bank has suggested that accounts with outstanding loans of more than ₹5,000 crore, of which at least 60% was classified as non-performing by banks as of March 31, 2016, can be referred for bankruptcy proceedings.
Bankers said that before moving the cases for bankruptcy proceedings, all details of these accounts will have to be checked and addressed to ensure the that possible loopholes are plugged.
The so-called special dispensation provided to borrowers under the terms of restructuring is seen as one loophole. Bankers and lawyers say borrowers could use this to delay proceedings.
“Before the application (to NCLT) is moved, we will have to ensure that there is no specific leeway the borrower had availed either on bilateral basis or from the consortium (of lenders), which would be hurdle during the proceedings,”said senior official of another bank.
Under the IBC, once a case is admitted by the NCLT, a resolution plan must be in place within 180 days of admission. This is extendable up to 90 days. In case there is no plan or the committee does not agree on one, the company will go into liquidation.
Another problem for banks is the sacrifice they have to make to resolve the bad asset, and the subsequent provisioning that will be required once bankruptcy proceedings start.
To be sure, RBI has said that it will detail revised provisioning norms for cases accepted under the bankruptcy code. However, state-owned banks, especially smaller ones, are lobbying for some relief on the provisioning either in the amount or spreading the said amount over few quarters, according to two bankers. This is to ensure that balance sheets are not further stressed at time when bad loans have risen and capital is scare.