RBI new rules may push big defaulters to bankruptcy

As per the new rules, companies with aggregate exposure of Rs 2,000 crore and above must implement a resolution plan (RP) within 180 days starting 1 March 2018.

The Reserve Bank of India has scrapped the existing resolution methods such as CDR, S4A and others to create simplified generic framework for resolution of stressed assets. 

 

As per the new rules, companies with aggregate exposure of Rs 2,000 crore and above must implement a resolution plan (RP) within 180 days starting 1 March 2018.

 

"If a RP in respect of such large accounts is not implemented...lenders shall file insolvency application, singly or jointly, under the Insolvency and Bankruptcy Code 2016 (IBC) within 15 days from the expiry of the said timeline," said an RBI notification.

 

The new rules say in case the resolution plan involves change in the ownership structure of the defaulting firm, the account should not be in default at any point during the specified period, which is the time between implementation of the plan and the date, where up to 20% of the outstanding principal debt is repaid. If there is a default in the specified period, the account must be referred for IBC proceedings.

 

The analysts opine the central bank's decision will improve recovery prospects from bad loans but keep banks’ provisioning requirement at an elevated level.

 

“... The fact that most cases remain in stress despite restructuring under various RBI schemes means that there is a high probability that most of these could be referred for (insolvency) proceedings,” Udit Kariwala, senior analyst, India Ratings was quoted as saying.

 

On the other hand, Krishnan Sitaraman, senior director at Crisil Ratings said the new rules will improve recovery rates in the long run because the failure in meeting timeline will lead to insolvency proceedings. 


Add new comment