RBI identifies more huge loan defaulters for resolution

The Reserve Bank of India (RBI) has identified the second batch of large accounts which have defaulted in repayment of loans and has advised banks to resolve them, a senior official said on Thursday.

The information was revealed by RBI Deputy Governor Viral Acharya, while delivering the 8th R.K. Talwar Memorial Lecture here.

The development assumes significance as the RBI in June had come out with a list of 12 large accounts which totaled to about 25 per cent of the current grossnon-performing assets (NPAs) of the banking system for reference under the IBC (Insolvency and Bankruptcy Code).

“The Reserve Bank has now advised banks to resolve some of the other accounts by December 2017; if banks fail to put in place a viable resolution plan within the timelines, these cases also will be referred for resolution under the IBC,” Acharya said.

“The Reserve Bank has also advised banks to make higher provisions for these accounts to be referred under the IBC. This is intended to improve bank provision coverage ratios and to ensure that banks are fully protected against likely losses in the resolution process.”

Acharya said that going forward, the RBI hopes that banks utilise the IBC extensively and file for insolvency proceedings on “their own without waiting for regulatory directions”.

“Ideally, in line with international best practice, out-of-court restructuring may be the right medicine at ‘pre-default’ stage, as soon as the first signs of incipient stress are evident or when covenants in bank loans are tripped by the borrowers,” he said.

On the framework side, once a default happens, the IBC allows for filing for insolvency proceedings, time-bound restructuring, and failing that, liquidation.

The promulgation of the Banking Regulation (Amendment) Ordinance, 2017, and the subsequent actions taken there under, have made the IBC “a lynchpin” of the new resolution framework.

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