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On the heels of putting in place a generic framework for insolvency proceedings of Systemically Important Financial Service Providers (FSP), the Centre has now specifically brought Non Banking Finance Companies (NBFCs) with over ₹500 crore assets size under the Insolvency and Bankruptcy Code (IBC) fold.
This latest move by the Corporate Affairs Ministry ( MCA) has been done in consultation with the Reserve Bank of India (RBI) and would cover housing finance companies too (those with asset size over ₹500 crore), official sources said.
It may be recalled that the generic framework provided that the Centre would, in consultation with the appropriate regulator, specify from time to time the category of FSP that would be brought under IBC for the purpose of their insolvency and liquidation proceedings.
The spate of NBFCs blowouts in the recent years had compelled the Government to invoke Section 227 of the IBC.
Corporate Affairs Secretary Injeti Srinivas had recently said that the special framework provided under Section 227 for financial service providers is essentially aimed at serving as an interim mechanism to deal with any exigency pending introduction of a full fledged enactment to deal with financial resolution of banks and other systemically important financial service providers. The special framework under Section 227 of IBC does not apply to banks.
NBFC view
Reacting to the latest MCA move to bring NBFCs with over ₹500 crore assets under IBC fold, Raman Aggarwal, Co-Chairman, Finance Industry Development Council said this is a positive move as with a defined resolution process in place, it should instil more confidence with the investors. However, the Centre must also immediately give NBFCs all the recovery tools that is currently available with other financial institutions, he added.
“Even as of today, NBFCs are not being given the benefit of all recovery tools. There are still various barriers that impede our recovery process”, Aggarwal said.
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