Jun 01, 2017

RBI sends 25% of India’s non-performing loans to the Insolvency and Bankruptcy Code, 2016

The Reserve Bank of India (‘RBI’) issued a press release on June 13, 2017 announcing that its Internal Advisory Committee (‘IAC’) has identified 12 Indian companies which qualify for immediate reference under the Insolvency and Bankruptcy Code, 2016 (‘IBC’). These 12 accounts constitute about 25% of the current non-performing loans (‘NPLs’) in India.

The RBI had last month constituted an IAC for the purpose of identifying NPLs that would be recommended for the corporate insolvency resolution process under the IBC.

The IAC had its first meeting on Monday, June 12, 2017 and agreed to focus on large stressed accounts. The IAC reviewed and considered the largest 500 NPLs. In identifying the 12 largest accounts, the IAC recommended that all accounts with outstandings greater than INR 50 billion (approximately USD 800 million) of which 60% or more are classified as non-performing as of March 31, 2016, qualify for reference to the IBC.

Crucially, the IAC also recommended that for NPLs, where the above criteria do not apply, a viable resolution plan must be finalised by banks within six months, failing which banks may be required to push these companied into the corporate insolvency resolution process under the IBC. More details on these other NPLs are expected in the coming days.

The RBI also confirmed that it will be publishing revised provisioning norms for cases admitted under the IBC. This was something which the banking industry had been keenly waiting for and will be relieved to hear is in the pipelines.

On May 4, 2017, an ordinance amended the Banking Regulation Act, 1949 empowering the RBI to direct banks to lead certain NPLs into the IBC process. On May 5, 2017 the Ministry of Finance empowered the RBI to do so. Also on May 5, 2017, the RBI revised and clarified important aspects of its restructuring circular. On May 22, 2017, the RBI announced that that it will form a committee to recommend cases for the IBC process (which is now called the IAC). This committee was formed and had its first meeting within three weeks of that announcement (June 12, 2017). And a day after its first meeting, the above announcement was made. The sense of purpose and impatience in the fight against NPLs is palpable and unprecedented. The next six to nine months are going to be very interesting to watch for stakeholders in the finance, restructuring and M&A space.




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