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Now, another tool for SBI to resolve stress

KR Srivats New Delhi | Updated on May 09, 2021

Bank pursuing board approval for policy framework on pre-packs, says MD

State Bank of India sees the recently-introduced pre-packaged insolvency resolution process (PPIRP) for MSME corporates as another good tool in its armoury for resolving stress.

Swaminathan Janakiraman, Managing Director (Risk, Compliance and Stressed Assets Resolution Group (SARG), SBI, told BusinessLine that the bank was putting together a policy framework for the same.

“We are putting together a board-approved policy framework for implementation of pre-pack among our MSME corporate customers. Over the next 4-6 weeks, we will start implementation and much would depend on how the ongoing second wave of Covid-19 plays out,” said Janakiraman. He made it clear that SBI would like to have multiple tools for resolving stress and that PPIRP cannot be a one-size fits all solution for the bank.

“We would see this as yet another good tool for resolving stress rather than taking a position that this will be the be all and leave out everything else. Pre-packs will looked at on a case to case basis.

“It will get applied selectively to begin with as several existing mechanisms like RBI’s MSME restructuring, regulatory forbearance, one-time settlement, are all options that could be used by the bank to resolve stress,” he said.

In the Indian context, a pre-packaged insolvency is an arrangement where the resolution of a company’s business is negotiated with the corporate debtor before the appointment of an insolvency professional. It is a blend of informal and formal mechanisms, with the informal process stretching up to NCLT admission, followed by an existing NCLT supervised process for resolution, specified under the Insolvency and Bankruptcy Code (IBC).

“We are preparing the ground for pre-pack implementation, given the Covid-19 situation we would like to wait for sometime before we go full throttle on this,” said Janakiraman.

He also pointed out that since April 1,2019, an MSME restructuring package had been introduced by the government and after one-year extension, this facility got over on end March 2021. Now, the RBI has few days back announced similar measures for exposures up to ₹25 crore that can be invoked by banks.

“Since there is regulatory forbearance and enabling restructuring already in place, most likely banks for the present may go for these measures rather than adding additional layer of NCLT to the process by adopting PPIRP,” he noted.

A viable alternative

Pre-packs are billed as a viable alternative to the Corporate Insolvency Resolution Process (CIRP) as they would be significantly less time consuming and inexpensive as against the formal insolvency proceedings. Janakiraman felt it would not be right to compare PPIRP and CIRP as they cater to different segments of people.

Meanwhile, Ashok Haldia, Chairman of Indian Institute of Insolvency Professionals of ICAI, said: “Pre-pack is preferred and, in fact, it should be first option given the formal and informal — outside IBC, process outlined in the Framework- leading to speed, trust and transparency.”

Published on May 09, 2021

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