A year later, the Insolvency and Bankruptcy Code is still work-in-progress
The Insolvency and Bankruptcy Code (IBC) introduced by the Narendra Modi government in December 2016 to fix the banking sector’s bad loans problem has over the last 16 months been a mixed bag, with borrowers and disgruntled bidders increasingly exploiting vagueness in some key provisions of the code to stall bankruptcy proceedings. The financial bidding process was expected to be wrapped up by the end of January 2018 for 12 large corporate loan accounts referred by the lenders to the National Company Law Tribunal (NCLT) following the Reserve Banks of India’s (RBI) directive last year.
One-day default rule: RBI non-committal on relief
The finance ministry is ‘sympathetic’ towards bankers’ request for increasing the default period for term loans to 30 days from one day, as stipulated by the Reserve Bank of India (RBI) in February, an official source told FE. However, the RBI hasn’t yet shown its willingness to change its position, which — it believes — is crucial to an early detection of potential bad debts and timely resolution of stressed assets. The RBI stipulated in February that even a one-day delay in the repayment of term loans would be considered a default and banks have to report it to the central bank.
Binani Cement resolution: Exim Bank claims ‘discrimination’ in process
n a move that is bound to keep uncertainty around the resolution of Binani Cement alive, and keep UltraTech Cement in the race, Export-Import Bank of India (Exim Bank) on Monday accused the resolution professional (RP) of “dereliction” of his duties as he allegedly did not ask the insolvent firm’s committee of creditors (CoC) to consider the revised bid of the Aditya Birla Group-led cement company under the corporate insolvency resolution process. Exim Bank, one of the unsecured financial creditors of the bankrupt cement maker, said under the Dalmia Bharat-controlled Rajputana Properties’ resolution plan, it would have to take a big haircut of Rs 170 crore.
NCLT allows insolvency proceedings against Essar Power (Jharkhand)
Essar Power (Jharkhand), an Essar Group firm, has been admitted by the National Company Law Tribunal (NCLT) for insolvency proceedings. However, unlike in the case of Essar Steel, Ruias did not offer any objection to the admission on a petition filed by ICICI Bank under Section 7 of the Insolvency and Bankruptcy Code (IBC). Failing to recover Rs 3,033.29 crore in debt from the company, a 100% subsidiary of Essar Power, the private-sector lender dragged it to the insolvency court, which said the “advancement of loan and default stand admitted”. According to ICICI Bank, the total amount in default (including interests and other charges) was Rs 3,468.29 crore as on December 15, 2017.
Dilution in letter or spirit of RBI rule endangers credit culture
Two years since it began the campaign to clean up bank balance sheets with the help of the Reserve Bank of India (RBI), the government is worried that the pain would ripple beyond banks onto the real sector in the form of job losses. Media reports suggest that the government now wants RBI to relax some of the rules the regulator tightened in February so that small borrowers with genuine pain do not get affected. Specifically, the government wants the central bank to do away with the SMA (special mention account) tag on borrowers only if they default beyond 30 days, according to an Economic Times report.
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