Now, NBFCs may be allowed to take defaulting borrowers to IBC as RBI may extend resolution framework

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Published: August 30, 2018 11:07:06 AM

India’s central bank RBI is planning to extend its circular dated February 12 dealing with with resolution of stressed assets, to Non Banking Financial Companies (NBFCs), RBI said yesterday.

If the resolution is not approved with 180 days, these institutions will have to initiate insolvency resolution under the Insolvency and Bankruptcy Code.

India’s central bank RBI is planning to extend its circular dated February 12 dealing with with resolution of stressed assets, to Non Banking Financial Companies (NBFCs), RBI said yesterday. These guidelines specify the one-day default norm and are applicable for banks currently. Earlier, the RBI, had done away with all its earlier instructions dealing with resolution of stressed assets and replaced them with the revised framework for resolution of stressed assets, in a circular dated February 12.

According to the details of the circular, RBI had mandated banks to implement a resolution plan within 180 days and in case of non-implementation, lenders were required to file an insolvency application. “The Reserve Bank is planning to extend the harmonised and simplified generic framework for resolution of stressed assets put in place for banks to NBFCs as well,” the RBI said in its annual report 2017-18 released yesterday.

With the inclusion of NBFCs under the framework, now within a day of loan default, the NBFCs will have to initiate resolution measures for their clients. If the resolution is not approved with 180 days, these institutions will have to initiate insolvency resolution under the Insolvency and Bankruptcy Code.

“If a RP (resolution plan) in respect of such large accounts is not implemented as per the timelines specified (in the circular), lenders shall file insolvency application, singly or jointly, under the Insolvency and Bankruptcy Code 2016 (IBC) within 15 days from the expiry of the said timeline,” the RBI said in its February 12 circular, which kicked in from March 1 with the 180 days deadline ending on August 27. Notably, as the deadline has ended, more than Rs 3 lakh crore worth of loan of around 70 companies are likely to be pushed for resolution under the IBC soon, according to a report published in the Indian Express.

Inclusion of NBFCs within the new stressed asset resolution framework is expected to increase the number of cases under the IBC. In its annual report released yesterday, the RBI also said that the government-owned NBFCs will be subjected to on-site inspection from the inspection cycle 2018-19. An on-line portal for reporting of cyber security incidents of NBFCs will be put in place in the current financial year, the RBI said. Currently, there are 42 government-owned NBFCs registered with the RBI — 16 owned by the Central government and 26 by the state governments.

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