The insolvency regulator has asked banks and other financial institutions to pitch in to identify necessary amendments to the rules and regulations relating to the Insolvency and Bankruptcy Code (IBC) that are urgently required to further bolster the bankruptcy ecosystem, sources told FE.
Banks, along with other financial creditors, form the powerful committee of creditors (CoC) – which votes on resolution plans for insolvent firms – and have the biggest stake in the resolution of toxic assets. While stakeholder consultations for policy-making have been routine affairs, banks, given the critical role they play in insolvency eco-system, are now increasingly being asked by the regulator to be more proactive and go beyond just providing mechanical inputs for policy-making.
The move comes at a time when the government and the Insolvency and Bankruptcy Board of India (IBBI) intend to cut delays in resolution and improve recovery — the two critical issues often flagged by banks and other stakeholders. Inordinate delays, usually caused by litigations and bottlenecks in the adjudicating system, have often been blamed for the erosion of stressed asset value. Consequently, recovery for financial creditors has remained far below par in recent quarters. It stood at just 10.7% of their admitted claims in the June quarter, having barely improved from a record low of 10.2% between January and March.
The government deferred the introduction of an IBC amendment Bill, which was to be taken up by Parliament in the monsoon session earlier this year. Once the IBC is amended, regulations around it will then be suitably altered by the IBBI.
IBBI chairman Ravi Mittal and other senior regulatory officials held a meeting with lenders under the aegis of the Indian Banks’ Association last month and impressed on them to come out with suggestions.
Already, the regulator has notified a raft of changes in regulations in recent months to promote fast resolution and maximisation of toxic asset value.
It has allowed part-sale of stressed firms if no bidder comes forward to pick up the entire insolvent company in the first instance. Similarly, it has also provided for firming up a strategy for the marketing of stressed assets to a wider and targeted pool of potential suitors. A longer time frame is now allowed for the asset to be in the market, as the invitation for expression of interest has been advanced to 60th day from insolvency commencement date. Interestingly, it has proposed to incentivise resolution professionals for making efforts to maximise the value of stressed assets beyond their liquidation value, and to ensure timely resolution.
In a bid to reduce delay, the IBBI has enabled creditors to examine whether they want to explore the option of ‘compromise or arrangement’—a restructure option under the Companies Act. In such cases, they can seek this option from the tribunal while applying for a liquidation order.