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Rs 3 lakh crore loans to come under IBC for resolution
Why in the news ?
- As much as Rs 3 lakh crore worth of loans of 70-80 companies is likely to come in for resolution under the Insolvency and Bankruptcy Code (IBC)
More in the news
- The Reserve Bank of India’s February 12 circular on restructuring bad loans had mandated banks to take loan accounts which remain unresolved for over 180 days, to the National Company Law Tribunal (NCLT) under the IBC.
- With the deadline ending on August 27, banks will be required to push unresolved cases to NCLT benches for resolution.
- The RBI had recently reviewed around 200 stressed assets of top business groups to assess the status of their classification and provisioning, and identify companies that would require resolution under the IBC.
- Most of these accounts, with value above Rs 2,000 crore each, have been declared as non-performing assets (NPAs) by banks and are required to be referred to the NCLT.
- For accounts with loan exposure below Rs 2,000 crore and above Rs 1,000 crore, the RBI is expected to announce the resolution framework in due course.
- Power sector companies are likely to be among the main cases that will now undergo resolution under the IBC.
- There are about 34 stressed power projects and the combined value of their outstanding loans is about Rs 1.74 lakh crore.
Previous proceedings
- RBI in last year june had sent a list of 12 defaulters with over Rs 5,000 crore of aggregate loan exposure each for resolution under the IBC.
- Of this, 11 accounts are in various stages of resolution at different benches of the NCLT, with bankers expecting over 50 per cent recovery from these accounts.
- The RBI subsequently sent another list of 28 stressed accounts for resolution. However, banks don’t expect more than 25-30 per cent from these accounts.
Insolvency and Bankruptcy Code (IBC)
- For establishing an insolvency regulation related to entities and individuals, the Parliament has enacted Insolvency and Bankruptcy Code 2016.
- The Code offers a uniform, comprehensive insolvency legislation encompassing all companies, partnerships and individuals (other than financial firms).
- For financial firms like banks, insolvency is a much delicate issue and for this a separate resolution regime will be enacted later.
- The Code provides clear, coherent and speedy process for early identification of financial distress and resolution of entities if the underlying business is found to be viable.
- It suggests two options – a restructuring if the firm is viable and liquidation if it is not financially viable.
- Resolution should be done quickly and judiciously to ensure that business is not stuck.
- The Lok Sabha has passed the Insolvency and Bankruptcy Code (Amendment) Bill 2017 to pave the way for tightening loopholes in existing code and to make resolution process more effective.
- It amends provision related to eligibility in IBC to state that insolvency professional will only invite those resolution applicants to submit a plan, who fulfil certain criteria laid down by him with approval of committee of creditors and other conditions which may be specified by Insolvency and Bankruptcy code.
- It prohibit certain people from submitting a resolution plan (specifying details of restructuring a defaulter’s debt). These persons include:
(i) wilful defaulters,
(ii) disqualified directors,
(iii) promoters or management of the defaulting company, and
(iv) any person who has committed these activities abroad.
- The Ordinance bars an insolvency professional from selling the property of a defaulter to any such person during liquidation.
Source
Indian Express.