The Indian Chamber of Commerce has urged the Reserve Bank of India to be cautious on sale of stressed steel asset and not to go by the defined deadline under the new Insolvency and Bankruptcy Code.

In a communication to the RBI, the Indian Chamber of Commerce said a strict timeline under the IBC should not result in liquidation of good assets and operating units just because the lenders are not taking decisions.

The letter to the central bank gains significance as the government earlier this month passed the Banking Regulation (Amendment) Ordinance, 2017, that gave more power to the RBI to tackle the NPA issue. RBI was empowered to issue directions to commercial banks to initiate insolvency proceedings to recover bad loans.

Resolution through IBC should be done only after the stressed loan sale to Asset Reconstruction Company fails. This will ensure that there is no risk of liquidation and the plant operations do not shut down leading to job loss, said Rajeev Singh, Director General, Indian Chamber of Commerce.

Steel companies have made huge investments in Odisha, Chhattisgarh and Jharkhand by raising bank funds worth ₹4.35 lakh crore. A large portion of the bank loan to steel industry has turned non-performing asset and banks have the requisite provisioning. The focus now should be on early resolution of bad loan issue, said Singh.

Suggesting that the Scheme of Sustainable Structuring of Stressed Asset (S4A) needs to be amended to cover cases where sustainable asset is below 50 per cent and moratorium on loan repayment, the Chamber said the definition of current funded liability should be as on the date when the loan turned NPA.

The S4A guideline was introduced in 2010, but the debt to steel industry ballooned over three times between 2011 and 2017 as the interest cost on loan was much higher than the Ebitda margin, it said.

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