Individual businesses to soon be under ambit of bankruptcy code

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Insolvency and Bankruptcy Board of India has published draft rules dealing with insolvency resolution process of individuals and firms on its website
Insolvency and Bankruptcy Board of India has published draft rules dealing with insolvency resolution process of individuals and firms on its website .                                    The existing insolvency and bankruptcy code, at present, applies only to corporate defaulters

The government on Tuesday expanded the scope of the new insolvency rules to bring individual businesses under its purview.

On Tuesday, the Insolvency and Bankruptcy Board of India (IBBI) published the draft rules dealing with insolvency resolution process of individuals and firms on its website (www.ibbi.gov.in) ; public comments can be submitted till 31 October.

Once notified, even individual businesses such as proprietorships will come under the bankruptcy regime. This will enable an orderly bankruptcy resolution within the purview of a transparent rules-based regime. The existing insolvency and bankruptcy code, at present, applies only to corporate defaulters.

“These rules shall apply to matters relating to the insolvency resolution process for individuals and firms under Part III of the code,” said the draft rules issued by IBBI.

Part III of the Insolvency and Bankruptcy Code, 2016, deals with insolvency and bankruptcy of individuals and partnership firms.

According to a statement issued by IBBI on Tuesday, the draft rules and regulations have been submitted by a working group which was formed to recommend the strategy and approach for implementation of the provisions of the Insolvency and Bankruptcy Code, 2016, dealing with insolvency and bankruptcy in respect of guarantors to corporate debtors, i.e., personal guarantors, and individuals having businesses.

“So far, the rules were only in respect of the Corporate Insolvency Resolution Process (CIRP) and the rules concerning individuals and partnership firms were yet to come,” said Satwinder Singh, partner at Vaish Associates, a law firm. “The jurisdiction for corporate, companies, limited liability partnership (LLP) lies before the National Company Law Tribunal (NCLT) and with the Debt Recovery Tribunal (DRT) for individuals and firms. The provisions relating to insolvency and bankruptcy of individuals and firms had not been notified earlier, so now the IBBI has come out with the draft rules.”

Harsh Pais, partner at law firm Trilegal, said, “It is a positive step towards consolidating the bankruptcy regime for individuals, for whom there was no systematic approach previously. For companies, at least there was recourse to the Companies Act, whereas for individuals there were only some archaic laws from the early 1900s, which were hardly relied upon in practice.”

Most of the small and medium enterprises (SMEs) take the legal form of either partnership or proprietorship firms. Though the loans are smaller in value, SME borrowers far outnumber companies, resulting in their borrowings exerting a significant influence in the financial sector’s stability.

Bankruptcy resolution is high on the agenda of the central government, which is keen to improve the ease of doing business in India and attract more private investments from domestic and overseas sources. An efficient exit route from failed projects is an essential factor that lenders consider before participating in projects.

 

Source: Live Mint

Bad loan crisis: Crackdown by banks sends borrowers scrambling to offer solutions

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Tough stance taken by govt, RBI makes borrowers cautious

Indian banks are beginning to spot a welcome change in their customers’ behaviour: borrowers who have seen their accounts classified as stressed or non-performing are approaching the lenders with proposals to resolve such accounts in a time-bound manner.

The tough stance taken by the central government and the Reserve Bank of India to end the festering bad loan crisis in the Indian banking sector has caught many borrowers by surprise and they are scrambling to put together resolution plans to avoid harsher penalties including insolvency proceedings, bankers said. Even a couple of months ago, it was difficult to get these clients to the negotiation table.

“I can definitely say that we are in a much better position than even six months ago. We are seeing traction from a section of our borrowers to come up with proposals for resolution of stressed accounts,” said Rajkiran Rai G, managing director and CEO, Union Bank of India. “However, it is too early to say if this is the end of the problem. We will have to see how the discussions shape up,” he added.

Borrowers with outstanding amounts between Rs 500-1,500 crore are the most active in trying to resolve their stressed accounts, and they are looking at various options including scouting for investors and sale of non-core assets, two senior bankers with state-run banks said on conditions of anonymity. A large number of these borrowers are from the steel, power and telecom sectors. Some of the larger corporates with outstanding amounts between Rs 1,500-5,000 crore have also taken initiative to resolve their stressed accounts. On an average, these account for about 50% of the current gross non-performing assets of the banking system, the bankers said.

In June, the RBI’s Internal Advisory Committee (IAC) had said 12 accounts totaling about 25% of the current gross NPA of the banking system would qualify for immediate reference under the Insolvency and Bankruptcy Code (IBC). At present, proceedings against all the 12 accounts are on in various benches of the National Company Law Tribunal across the country. For accounts that do not qualify under the above criterion, IAC had recommended that banks should finalise a resolution plan within six months. “In cases where a viable resolution is not agreed upon within six months, banks should be required to file for insolvency proceedings under IBC,” the RBI had said.

Source: http://www.financialexpress.com/economy/bad-loan-crisis-crackdown-by-banks-sends-borrowers-scrambling-to-offer-solutions/769027/

RBI gets nod to embark on India’s biggest banking clean-up

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The RBI will embark on its biggest banking clean-up exercise after President Pranab Mukherjee promulgated an ordinance authorising it to issue directions to banks to initiate insolvency resolution process in the case of loan default.

The tweak in the rules will help the Modi government tackle toxic loans that have crossed the Rs 6 lakh crore mark.

So, what does this mean?
1) The ordinance promulgated by the government on bad loans has now empowered the RBI to issue directions to banks for resolution of stressed assets. This basically implies the central bank can issue directions to any banking company or banking firms to initiate insolvency resolution process with respect to a default under the provisions of the Insolvency and Bankruptcy Code, 2016.

2) It has also empowered RBI to issue directions to banks for resolution of stressed assets.

3) The law will also empower RBI to set up sector related oversight panels that will shield bankers from later action by probe agencies looking into loan recasts.

4) RBI will be able to give specific solutions with regard to hair cut for specific cases and also, if required, look at providing relaxation in terms of current guidelines.

What is RBI’s target?
The central bank wants to resolve 60 largest delinquent-loan cases in nine months, a person familiar with the matter told Bloomberg.
Why is it being done now?

Ridding bank balance sheets of stressed assets is key to reviving credit growth and furthering Prime Minister Narendra Modi’s goal of creating more jobs in the $2 trillion economy.Various schemes proposed by RBI to resolve the problem have been unsuccessful, with lenders reluctant to write down assets sufficiently and company owners unwilling to negotiate repayment plans.

Stressed assets — bad loans, restructured debt and advances to companies that can’t meet servicing requirements — have risen to about 17 percent of total loans, the highest level among major economies, data compiled by the government shows.

Source : http://economictimes.indiatimes.com/articleshow/58530686.cms