Second list of defaulters out; RBI hope lenders file for IBC on their own without regulatory directions

Viral Acharya Deputy governor of Reserve Bank of India (RBI) has confirmed that the central bank has prepared the second list of large defaulters and will ask banks yo refer these accounts to the National Company Law Tribunal (NCLT) for insolvency proceeding. 

Acharya said, " 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."

He added, "The Reserve Bank has also advised banks to make higher provisions for these accounts to be referred under the IBC."

The central bank has sent out letter to lenders asking them that these accounts should first be resolved through any of RBI’s schemes before 13 December, failing which cases should be filed against these companies under the IBC at the NCLT before 31 December."

Reportedly it is stated that central bank has sent banks the second list of over 40 large corporate defaulters. 

Companies like Videocon,  IVRCL, Visa Steel,  Uttam Galva, Castex, Jayswal Neco, Ruchi Soya, Nagarjuna Oil & Orchid Chemicals, East Coast Energy, SEL Manufacturing, Soma Enterprises, Asian Colour, Ispat Coated and Unity Infraprojects are speculated to be under the second list. 

On June 13, 2017, as a part of NPA resolution, RBI through its Internal Advisory Committee (IAC)  recognized 12 accounts under Insolvency & Bankruptcy code (IBC). 

12 defaulters were - Bhushan Steel, Lanco Infratech, Essar Steel, Bhushan Power & Steel, Alok Industries, Amtek Auto, Monnet Ispat, Electrosteel Steels, Era Infra Engineering, Jaypee Infratech, ABG Shipyard and Jyoti Structures.

According to Acharya, this is intended to improve bank provision coverage ratios  and to ensure that banks are fully protected against likely losses in the resolution process. 

"The higher regulatory minimum provisions should enable banks to focus on what the borrowing company requires to turnaround rather than on narrowly minimizing their own balance-sheet impacts. This should also help transition to higher, and more countercyclical, provisioning norms in due course," added Acharya. 

Going forward, RBI  hopes that banks utilize the IBC extensively and file for insolvency proceedings on their own without waiting for regulatory directions. 

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

"This would provide the sanctity that the payment ‘due date’ deserves and improve credit discipline all around, from bank supply as well as borrower demand standpoints, as borrowers might lose control in IBC to competing bidders, " RBI said.