Lenders have RBI's 7 June circular to resolve stress in the absence of IBC: Rajnish Kumar

Although new cases under India’s insolvency law has been suspended for six months, lenders have RBI’s stressed asset resolution framework released on 7 June last year to fall back on, said Rajnish Kumar, chairman, State Bank of India (SBI).

In June, President Ram Nath Kovind had promulgated an ordinance suspending the Insolvency and Bankruptcy Code (IBC) for a period of at least six months from 25 March to protect businesses from being dragged to bankruptcy courts.

“That should not matter because in any case, the resolution framework of Reserve Bank of India (RBI) gives a window of about six months to arrive at a resolution framework and only if lenders do not succeed in that period, they have the choice to take the borrower through the legal process of DRT or NCLT,” Kumar said at an event organised by industry body Ficci on Thursday.

While DRT stands for Debt Recovery Tribunal, NCLT is the National Company Law Tribunal.

Kumar said that there is enough regulatory leeway available to resolve any stress outside the legal framework. “That is where the 7 June 2019 framework of RBI assumes importance and now a special window has also been provided,” he said. “Even outside the legal process, the regulatory framework of RBI provides rules and regulations and the manner in which corporate as well as retail stress can be taken care of.”

According to Kumar, there are various estimates about the opportunity in stressed assets owing to covid-19. However, he said he has a slightly contrarian view but does not want to disappoint potential investors.

“From the analysis of my own loan book, I feel that the opportunity may not be as large as it is being made out to be. That would be a happy situation for the country and all of us should wish that this opportunity remains small,” said Kumar.

Meanwhile, he also said that SBI is a beneficiary of IBC as it has a rather “dubious distinction” of having the largest stressed assets portfolio in the country. “Not in terms of percentage of our total portfolio but by its absolute size our portfolio is very large, which is almost ₹1.5 trillion,” said Kumar.