The Banking Regulation (Amendment) Ordinance, 2017 gives the Reserve Bank of India (RBI) the right to direct banks to initiate an insolvency resolution process in the case of a default. This also means that the work of the Insolvency and Bankruptcy Board of India (IBBI), which governs the insolvency procedures in India, will only go up. Its chairperson MS Sahoo is confident though that the organisation is equipped to handle the added load. The existing infrastructure in the insolvency ecosystem, he said in a phone interview with BloombergQuint, is more than adequate to manage a large influx of stressed cases.
Edited excerpts of the interview...
The government's ordinance on stressed assets allows the RBI to direct banks on initiating insolvency and bankruptcy process. Is the ecosystem ready for this?
The entire ecosystem of insolvency is already available to creditors and transactions are happening. I really do not have to do anythingadditional for this purpose. Anybody who wants to use this has to come andmake an application before the National Company Law Tribunal (NCLT). It will be admitted if the default isestablished and then the insolvency professional is appointed and the marketforces take over.
From my side, insolvency professionals are in place, thereare 11 benches of NCLT all over the country already. Everything is then inplace, except one small thing which is also not necessary on the firstday, which is the information utility. This utility will provide readymade informationthat helps in establishing default or determining the amount of claim. In theabsence of that there are alternative arrangements.
What was the need for explicit legislation allowing the RBIto direct banks in insolvency cases?
It is for the government and the RBI, who are the respectivepolicy makers and prudential regulators, to decide that. They have a number ofmechanisms available with them and they are also recognising that the insolvencyand bankruptcy route is also available.
Would you say that the public sector banks weren't fullyutilising the insolvency route? If not, then why shift decision making to theRBI?
One is that the mechanism is already available and anybody is welcome to come and use it. Banks are already using it today but I think they are essentially looking at streamlining and deciding the principles on what kind of cases can go through the system. The RBI can now direct in certain cases and even if there is no direction, there is no prohibition on the banks to not use this mechanism to resolve stress. Whether a bank comes up on its own or otherwise, the decision on resolution is still taken by the committee of creditors.
We expect a lot of flow to the NCLT during the next six to nine months, owing to the insolvency cases. Is the IBBI well equipped to handle this flow?
The load does not come on the NCLT because the decisions are being taken by the committee of creditors and they decide on the restructuring plan. If you are talking about the top 40 or 50 or even 100 (cases), these are low number of cases, actually. About 600-700 cases have already been brought before the NCLT.
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