To speed up insolvency proceedings, lenders to approach IBBI for relief

Disenchanted by the long-drawn-out proceedings for insolvency resolution cases filed against large borrowers that have failed to repay loans, many banks are planning to approach the Insolvency and Bankruptcy Board of India (IBBI) for some succour.

Nearly a year after the Reserve Bank of India recommended a dozen large bad loan accounts for resolution under the country’s Insolvency and Bankruptcy Code (IBC), lenders are turning wary of the inability to meet specified timelines under the law, thanks largely to promoters’ deployment of tactics to stall proceedings inordinately.

As per the code, a corporate insolvency proceeding has to be resolved within 180 to 270 days. The deadline for most of these 12 cases is now clearly over, pointed out a senior banker.

“There seems to be no resolution in sight for the first 12 cases taken up under the IBC. In each case, the promoters seem to be dragging out the proceedings. Lenders are getting very restless about recovering their dues,” said a senior banker, adding that there is a growing feeling that borrowers are misusing provisions of the IBC to prolong the cases.

Banking industry sources said that many of the banks are now discussing the issue and could jointly approach the IBBI this month to ensure that the timelines set out for insolvency proceedings are fully met.

The 12 large defaulter accounts, referred first for insolvency proceedings by the central bank, include Electrosteel Steels, ABG Shipyard, Amtek Auto, Jyoti Structures, Essar Steel and Jaypee Infratech, and cumulatively owe over ₹2.7 lakh crore in bad loans.

In at least five of the insolvency cases, the National Company Law Tribunal – where insolvency matters are heard – has approved the extension of the timeline.

“Earlier, it was expected that the banks would start getting their dues in the first quarter of the fiscal, but now any kind of resolution seems unlikely and everyone is wondering when the loans will be repaid,” noted the second banker.

“If the strict timeline is not met, then the charm of the new law goes away and we might as well return to the era of the Debt Recovery Tribunals,” said the first banker.

A timely resolution of cases will also help banks that are registering higher non-performing assets after the recent Reserve Bank of India guidelines for early recognition of stressed assets.

“The transparent and time-bound process driven by NCLT offers hope. While haircuts are likely to be deep – at 60 per cent plus, in our view in many large cases – the scale and timeframe of recovery will mark a watershed for Indian banking,” Crisil had said in a recent research note.

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