Mumbai: The Reserve Bank of India (RBI) on Tuesday said 12 accounts representing about 25% of the gross bad loans in the banking system would be eligible for immediate reference for bankruptcy proceedings.
Indian banks are sitting on a stressed asset pile of close to Rs10 trillion; of this, gross bad loans account for Rs7.7 trillion and the rest are restructured loans.
An internal panel of the central bank has suggested that accounts with outstanding amounts of more than Rs5,000 crore, of which at least 60% was classified as non-performing by banks as of 31 March 2016, can be referred for bankruptcy proceedings.
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RBI did not disclose the names of the accounts. The accounts were shortlisted by an internal advisory committee (IAC), which mainly comprises the central bank’s independent board members.
Under a 5 May ordinance amending the Banking Regulation Act, the central bank has the powers to suggest to, and even compel, banks to invoke proceedings against defaulters.
At its first meeting on Monday, the panel discussed the top 500 stressed accounts of the banking system that could be referred for resolution under the Insolvency and Bankruptcy Code, 2016 (IBC).
“The Reserve Bank, based on the recommendations of the IAC, will accordingly 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.
NCLT is the arbitration authority for cases filed under IBC.
So far, 81 cases of bad loans have been referred to NCLT, finance minister Arun Jaitley said on Monday after meeting bank chiefs. About 18 were referred for bankruptcy by their creditors, the minister said.
RBI also said that it would detail revised provisioning norms for cases accepted under the bankruptcy code.
“We are expecting RBI to give us forbearance on provisioning requirement for 8 quarters. Else, weak banks will find it difficult to take a haircut under the resolution plan of IBC," said a senior banker on condition of anonymity
For accounts that don’t meet the criterion set by the advisory panel, the IAC suggested that banks should finalize a resolution plan within six months. In cases where a viable plan is not agreed within six months, banks have to file for insolvency proceedings, the RBI statement said.
The details of the resolution framework for these other non-performing accounts will be released in the coming days, it said.
“It is a bold and much-needed move in line with the ordinance. The stakeholders should see bankruptcy as a positive move and as an opportunity to restructure rather than only liquidation," said Sapan Gupta, national practice head of banking and finance at law firm Shardul Amarchand Mangaldas & Co.
Gopika Gopakumar contributed to this story.