RBI identifies Accounts for Reference by Banks under Insolvency and Bankruptcy Code

The Reserve Bank of India (RBI) on 13 June 2017 stated that 12 accounts representing about 25 per cent of the gross bad loans in the banking system would be eligible for immediate reference for bankruptcy proceedings.

It was concluded by an Internal Advisory Committee (IAC) that held its first meeting on 12 June 2017. The IAC, in the meeting, agreed to focus on large stressed accounts at this stage and accordingly took up for consideration the accounts, which were classified partly or wholly as non-performing from amongst the top 500 exposures in the banking system.

Points made by the Internal Advisory Committee in first meeting

• The IAC arrived at an objective, non-discretionary criterion for referring accounts for resolution under Insolvency and Bankruptcy Code (IBC).

• Specifically, the IAC recommended for IBC reference all accounts with fund and non-fund based outstanding amount greater than Rs 5000 crore, with 60 per cent or more classified as non-performing by banks as of 31 March 2016.

• The IAC also noted that under the recommended criterion, 12 accounts totalling about 25 per cent of the current gross NPAs of the banking system would qualify for immediate reference under IBC.

• In regard to the other non-performing accounts, which do not qualify under the above criteria, the IAC recommended that banks should finalise a resolution plan within six months. In cases where a viable resolution plan is not agreed upon within six months, banks should be required to file for insolvency proceedings under the IBC.

• The RBI, based on the recommendations of the IAC, will accordingly issue 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).

Background

The Reserve Bank of India on 22 May 2017 had announced the steps taken and those on the anvil pursuant to the promulgation of the Banking Regulation (Amendment) Ordinance, 2017.

The central bank has also mentioned that it would constitute a Committee comprised majorly of its independent Board Members to advise it in regard to the cases that may be considered for reference for resolution under the Insolvency and Bankruptcy Code, 2016.