Banks, Fis To Bring Bifr Firms To Arc Net

With the President promulgating the Ordinance on securitisation and asset reconstruction companies, banks and financial institutions are now planning to bring a large chunk of the 3,951 companies registered with the Board for Industrial and Financial Reconstruction (BIFR) under the asset reconstruction companies (ARC) net.

As a result of the Ordinance, in case of a company that has borrowed, say, Rs 100 crore and has subsequently been referred to BIFR, the lenders who between them have lent Rs 75 crore or more to the entity can seek a transfer of the case from BIFR to ARC so that it would be easier for them to recover the amount due and clear their books of non performing assets.

The Ordinance provides for transfer of cases pending with BIFR to ARCs if 75 per cent of the lenders agree to the proposal.

The provision was originally incorporated in the Companies Amendment Bill, tabled in Parliament along with the Sick Industrial Companies Repeal Bill.

The Companies Amendment Bill is at present pending with the Parliamentary standing committee.

Banking and institutional sources said that the provision in the Ordinance would help the financial sector recover a substantial amount from promoters who had taken recourse with BIFR.

Sources estimated that an overwhelming percentage of the of the companies with BIFR would fulfill the 75 per cent qualifying clause.

They added that the issue is expected to be discussed at the heads of institutions meeting as also under the corporate debt restructuring set up which includes banks and FI executives.

To clamp down on willful defaulters approaching BIFR, the Ordinance also seeks to bar companies approaching the Board after the accounts have been shifted to the ARC.

The provision, however, would not be valid for the next few months as there are no ARCs in India at present.

The government proposes to set up India