Undeterred by the Ahmedabad High Court’s order on Friday to stay insolvency proceedings against Essar Steel, the finance ministry wants banks to gear up to fight such cases in courts too in future to take the bad loan battle to its logical end. Official sources told FE that the move to invoke the Insolvency and Bankruptcy Code (IBC) against 11 other companies, as recommended by the Reserve Bank of India, will not be stopped despite the court’s ruling. A senior government official said banks must remain resolute in their battle against stressed assets and they should fight such cases in courts too, when required, to thwart the defaulter’s tactics to delay resolution of the bad debt issue. However, the ruling stokes fears that other big defaulters will be emboldened to employ the same tactics as Essar Steel (of approaching courts) to delay insolvency proceedings.
Apart from Essar Steel, insolvency proceedings have been moved against Bhushan Steel, Electrosteel Steel and Lanco Infratech. These are among the 12 cases recommended by the RBI last month for resolution under the IBC. SBI is the lead banker to defaulters of Essar Steel, Bhushan Steel and Electrosteel Steel. The 12 accounts identified by the RBI are those accounts where outstanding loans were above `5,000 crore each, with 60% or more classified as non-performing by banks as of March 31, 2016. Together these cases accounted for a quarter of the total bad loans. NPAs touched `7.11 lakh crore as of April, with most concentrated in public-sector banks, showed Capitaline data.
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Usually, once a case is referred to the National Company Law Tribunal, there is a 180-day time line to decide on a resolution plan though 90 days can be given in addition. If a plan is not decided, then the company will go into liquidation.
The RBI move came after the centre, through the Banking Regulation (Amendment) Ordinance, 2017, had authorised the central bank in May to direct banks to resolve specific cases of bad loans by initiating resolution process under the new insolvency law, where required.