Reserve Bank of India identifies 40 large accounts to begin insolvency proceedings
The Reserve Bank of India has identified 40 large defaulters against whom banks will soon start bankruptcy proceedings, a government official said on condition of anonymity.
Along with the 12 cases where bankruptcy proceedings are on, this would account for 60-65% of the bad loans clogging the banking system, this person added.
In June, RBI identified 12 accounts accounting for 25% of gross bad loans in the system for immediate bankruptcy proceedings.
After RBI identified the 12 accounts, it asked banks to file proceedings under the Insolvency and Bankruptcy Code with the National Company Law Tribunal, the arbitration authority for all cases filed under the code. The 12 cases are now winding their way through NCLT.
Indian banks are sitting on a stressed asset pile of more than ₹10 lakh crore, of which gross bad loans accounted for ₹8.29 lakh crore at the end of June quarter; the rest are restructured loans.
For the 40 accounts, apart from NCLT, the Joint Lenders forum (JLF)and oversight committee option is also available as an option for resolution, the government official added. Under this, the JLF will formulate a resolution plan which will be vetted by the oversight committee. The central bank has expanded the scope of JLF beyond S4A (Scheme for Sustainable Structuring of Stressed Assets).
RBI in a press release issued on 13 June said that banks should finalise a resolution plan within six months for their top 500 stressed accounts.
If the consortium of lenders fail to agree, the only option left is to move to the NCLT. NCLT is the arbitration authority for cases filed under Insolvency and Bankruptcy Code (IBC).
The central bank in May had slashed the minimum votes required in a JLF to reach a decision, hours after the government introduced Banking Regulation Amendment ordinance. Decisions agreed by 60% of creditors by value and 50% by number would be the basis for deciding a corrective action plan against assent of 60% by number of creditors and 75% by value to achieve resolution earlier.
This is part of the central bank’s action plan to implement the recently passed ordinance that amended the Banking Regulation Act.
“It has to been seen from which sectors these 40 large accounts are coming from. Interest has been shown by global investors in few of commodity companies which have been referred so far,” said Siddharth Purohit, senior banking analyst, Angel Broking Ltd.
“Banks will prefer resolution over liquidation given lower incremental provisioning requirement in the former,” added Purohit.