Firms, lenders ask RBI to extend insolvency deadline

If debt resolution is not finalised by December 13 for the 28 companies, insolvency proceedings will kick off

With time running out for a resolution of the second list of non-performing assets (NPAs) on the Reserve Bank of India (RBI) list, lenders and corporate bodies have approached the central bank for extending the December 13 deadline.

If debt resolution is not finalised by December 13 for the 28 companies on the list, insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) will be initiated. The debt exposure of these companies would be more than Rs 1 lakh crore.

“No major progress has been made so far in debt resolution for the 28 accounts. Hence, some banks have sought an extension of the deadline,” said the head of a public sector bank. 

“If the deadline is not extended, most of the cases will go to the National Company Law Tribunal (NCLT). The kind of haircut being put on the table is not acceptable to the banks. So decision-making is very difficult at this stage,” he said.

UCO Bank Managing Director and Chief Executive Officer R K Takkar said his bank had not made any request for extending the deadline, but added that if the RBI didn’t put it off, many accounts would go to the NCLT. 

“In a few cases, banks are at an advanced stage of a resolution,” he said. 

UCO Bank has an exposure of about Rs 4,500 crore in 16 of the 28 accounts. Industry sources said the rating agencies that were vetting the restructuring proposals were given their share of companies to handle in the third week of November. The Joint Lenders’ Forum has been taking up cases one by one based on the ratings.

A promoter whose company is on the second list pointed out that the RBI had said that it would come up with separate guidelines for NPAs below Rs 5,000-crore accounts.

“This guideline has still not come and lenders are still waiting before they take the next course of action. So how can one decide on December 13,” he asked.

The Indian Chamber of Commerce (ICC) has written to RBI Governor Urjit Patel, requesting an extension of the deadline to March 31, 2018.

Since the IBC is a new code and there are more than 300 accounts under the IBC in the NCLT without a resolution so far, banks should get more time for debt resolution outside the IBC to avoid risks of liquidation and plant closure with consequent unemployment, according to the chamber.

“The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, has also been recently issued on November 23, 2017, which is likely to delay the resolution of exposures above Rs 5,000 crore already under the IBC till April 2018 and it would be prudent to refer further cases to NCLT only after there is clarity on resolution of the existing cases,” the ICC letter added.

Based on the recommendations of the Internal Advisory Committee, the RBI had recommended 12 large accounts for immediate resolution under the IBC. Currently, these accounts are going through insolvency. 

Companies on the second list said right now there was no benchmark for the lenders. “If the resolution of the 12 large accounts happened then, there would have been some kind of a direction for the smaller ones that are on the second list. Most of the non-binding bids have been extended and may just happen in January so a complete resolution will take place only in end-March or April. So there is no reason why the deadline for NPAs with debt below Rs 5,000 crore can’t be extended,” said the promoter of one of the companies. 

The government has come up with an Ordinance that practically debars promoters from reacquiring their assets. Also, with so many issues under litigation, including the Ordinance, lenders don’t want to move ahead without clarity and deal with these cases, the companies say. Lenders, in the meantime, are exploring options like one-time settlements or sale to asset reconstruction companies. 

“Once the cases are admitted to the NCLT, provisioning requirement will go up substantially,” the head of a public sector bank said. As of now, of the 30 companies, around 10 were prepared to submit resolution proposals, said sources close to the development.

KEY TAKEAWAYS

• Estimated no. of accounts in the second list 28-30
• Metals account for 36.4% of the total no. of accounts in the second list
• More than 60% of the total outstanding in these accounts was classified as NPA as on June 30, 2017
• Based on recommendations of the Internal Advisory Committee, it was decided that a viable resolution plan would have to be finalised by December 13, 2017, failing which the accounts will be referred for resolution under IBC
• Banks, corporates say if the deadline is not extended, most cases will go to NCLT