RBI Identifies 12 Large Stressed Accounts For Insolvency Proceedings

RBI moves to resolve large NPAs, identifies 12 large accounts for insolvency.

A worker uses a cutting torch in a workshop in the Naraina steel and iron market area of New Delhi. (Photographer: Prashanth Vishwanathan/Bloomberg)
A worker uses a cutting torch in a workshop in the Naraina steel and iron market area of New Delhi. (Photographer: Prashanth Vishwanathan/Bloomberg)

The Reserve Bank of India on Tuesday said that its independent advisory committee (IAC) has identified 12 large corporate accounts for immediate referral to the Insolvency and Bankruptcy Board.

In a statement on its website, the regulator said that the IAC, which met on Monday, approved the criteria to resolve bad loan cases under the Insolvency and Bankruptcy Code. Accordingly, all large corporate accounts with fund- and non-fund based exposure of Rs 5,000 crore and above each and where more than 60 percent of the loans had turned bad as on March 31 last year, would qualify for being referred to Insolvency and Bankruptcy Board.

On the basis of this criteria, the IAC identified the 12 accounts, which represent about 25 percent of the banking system’s gross non-performing assets, the RBI said.

“The IAC, in the meeting, agreed to focus on large stressed accounts at this stage and accordingly took up for consideration the accounts which were classified partly or wholly as non-performing from amongst the top 500 exposures in the banking system,” the central bank said in its statement.

RBI Identifies 12 Large Stressed Accounts For Insolvency Proceedings

According to a senior banker, who declined to be identified, banks were hoping the RBI would give some relaxation in existing schemes but it has decided that the best way is through the IBC. Apart from the 12 accounts identified by the RBI, most other large stressed accounts will also now go to IBC since there is no relaxation on schemes. The only concern is whether the IBC would be able to handle so many large accounts together, said this banker.

According to the banking regulator, these accounts would be accorded priority by the National Companies Law Tribunal (NCLT), which hears all the insolvency cases in India. The RBI will be issuing specific directions to banks in this matter, it said.

The RBI’s move is unprecedented and shows its intent to deal with the bad loan problem swiftly, said Kumar Saurabh Singh, Partner, Khaitan & Co.

You essentially now have a 270-day window within which to come up with a viable restructuring plan or face liquidation.
Kumar Saurabh Singh, Partner, Khaitan & Co.

Singh added that as soon as banks file an application for admission of the case, the board of the company concerned will be replaced. However, there could be some delay if the companies or promoters challenge the admission of the application.

H Jayesh of law firm Juris Corp said, “This will push banks and promoters to work out a deep restructuring plan within the stipulated time period. Else, liquidation is the only option.”

The IAC was created by the RBI after an amendment to the Banking Regulation Act by the government. The committee largely comprises independent members of the RBI board, the regulator had said earlier. However, it didn’t mention who the members were.

The amendment allowed the central bank to issue specific directions to banks on stressed asset resolution, while also allowing it to create committees that would aid in this purpose. It specifically mentioned the use of the insolvency route for stress resolution.

For cases which do not qualify for the IAC’s criteria for insolvency, the committee has recommended that banks should finalise a resolution plan within six months.

“In cases where a viable resolution plan is not agreed upon within six months, banks should be required to file for insolvency proceedings under the IBC,” the RBI said in its statement.

The regulator said that it will issue another set of restructuring guidelines for the remaining non-performing accounts in the coming days.

The banking system is currently sitting on stressed loans worth over Rs 10 lakh crore, which represent about 17 percent of the total loans in the banking system.