Come Tuesday, senior bankers will turn students at the Reserve Bank of India (RBI) building in Mumbai’s Bandra Kurla Complex. As both the government and the central bank seek to use the Insolvency and Bankruptcy Code (IBC) 2016 as a weapon against toxic assets with the banking system, the Centre for Advanced Financial Research and Learning, an independent body set up by the RBI, has partnered with consultancy firm McKinsey to organise a workshop to familiarise bankers with the new insolvency law. Participants would include senior officials from the banks handling the 12 large non-performing asset (NPA) accounts selected by the RBI last month for resolution under the IBC. “Executive directors and general managers of some banks, especially the public-sector ones, will be attending the workshop. The idea is to prepare them for dealing with the resolution process under the IBC,” a senior government official told FE.
One of these big defaulters, Essar Steel, recently moved the Gujarat High Court to challenge the RBI move. This made the bankers jittery about the delaying tactics of defaulters in resolving the stressed asset issue under the IBC. So adequate knowledge of the IBC and its applicability have become a must for bankers now. The IBC is aimed at the turnaround of stressed assets or, in case of liquidation, their quick monetisation. Secured creditors, including banks, are placed third in the preference order in case of any liquidation to receive the proceeds, after meeting the cost of resolution and workers’ dues.
The insolvency law came to sharp focus in May when the Centre, through the Banking Regulation (Amendment) Ordinance, 2017, had authorised the RBI to direct banks to resolve specific cases of bad loans by initiating resolution process under the new insolvency law, where required.
The central bank can now give directions on even specific cases of defaults, a practice it had generally avoided earlier. Following the Centre’s move, the RBI selected the 12 big NPA accounts, which accounted for a quarter of the bad loans of banks, for resolution under the new insolvency law. Gross NPAs touched a massive Rs 7.11 lakh crore as of April, with most concentrated in public-sector banks, according to Capitaline data.
Usually, once a case is referred to the National Company Law Tribunal under the IBC, there is a 180-day timeline 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.