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To purge the banking system of big-ticket stressed assets, the Reserve Bank of India’s internal advisory committee (IAC) has recommended for immediate reference under the Insolvency and Bankruptcy Code (IBC) 12 accounts totalling about 25 per cent of the current gross non-performing assets (GNPAs) of the banking system.
GNPAs of the banking system are estimated at about ₹8 lakh crore. The RBI did not disclose the names of the accounts.
In particular, the IAC, which comprises mainly the central bank’s independent board members, recommended for IBC reference all accounts with fund and non-fund-based outstanding amounts greater than ₹5,000 crore, with 60 per cent or more classified as non-performing by banks as of March 31, 2016.
The RBI, based on the recommendations of the IAC, will be issuing directions to banks to file for insolvency proceedings under the IBC in respect of the identified accounts. Such cases will be accorded priority by the National Company Law Tribunal (NCLT), the central bank said in a statement.
The central bank will be coming up with revised provisioning norms for cases accepted for resolution under the IBC.
At its first meeting on June 12, the IAC, which was constituted to advise the RBI on the cases that may be considered for reference for resolution under IBC, agreed to initially focus on large stressed accounts and, accordingly took up for consideration the accounts that were classified partly or wholly as non-performing from amongst the top 500 exposures in the banking system.
The IAC also arrived at an objective, non-discretionary criterion for referring accounts for resolution under IBC.
The RBI said details of the resolution framework with regard to the other non-performing accounts will be released in the coming days.
The IBC is a single law that deals with insolvency and bankruptcy. It provides for a clear, coherent and speedy process for early identification of financial distress and resolution of companies and limited liability entities if the underlying business is found to be viable.
Under the provisions of the Code, insolvency resolution can be triggered at the first instance of default and the process of insolvency resolution has to be completed within a stipulated time limit.
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