RBI selects 12 accounts, accounting for 25% NPAs, for Insolvency and Bankruptcy code

On June 13, 2017, Reserve Bank of India identified 12 non-performing accounts representing 25% of gross NPAs in Indian banking system, which will be immediately taken up under the Insolvency and Bankruptcy Code (IBC).

Background Information:

The Indian banking sector has accumulated gross non-performing assets (NPAs) worth over Rs 8 lakh crore, of which Rs. 6 lakh crore is with public sector banks.

• On June 12, 2017, an Internal Advisory Committee (IAC) of RBI comprising majorly of central bank’s independent board members held its first meeting to consider cases under the new IBC.
• To start with, IAC agreed to focus on large stressed accounts and thereby took up for consideration the accounts which were classified partly or wholly as non-performing from amongst the top 500 exposures.
• The IAC followed an objective and non-discretionary criterion that all accounts with total outstanding loans greater than Rs 5,000 crore, with at least three-fifths (60%) classified as non-performing by banks as on March 31, 2016, should be referred under IBC.
• Besides the 12 accounts, for other bad loan accounts, RBI has instructed banks to finalise a resolution plan within six months. If the plan is not agreed within the stipulated time, those accounts too shall be subjected to IBC.

About Insolvency and Bankruptcy Code (IBC):

Insolvency and Bankruptcy Code, 2016(IBC) is the bankruptcy law of India that seeks to resolve bad loans through the legal route.

• It was passed by Indian Parliament in May 2016, and came into force from August 2016.
• The code prescribes separate insolvency resolution processes for individuals, companies and partnership firms and has also specified the time limit within which the process should be completed.
• Insolvency and Bankruptcy Board of India, was established in October 2016 to oversee the insolvency proceedings and regulate the entities registered under it.
• The code has outlined that the process should be managed by licensed professionals, who will also control the assets of the debtor during the insolvency process.
• National Company Law Tribunal (for companies and Limited Liability Partnership firms) and Debt Recovery Tribunal(for individuals and partnerships) are the arbitration authorities for cases filed under IBC.