Ministry of Finance

Posted On: 24 JUL 2018 4:05PM by PIB Delhi

As per bank inputs, banks had set-up a Committee on Resolution of Stressed Assets, which has given its Report suggesting a five-pronged approach for stressed assets resolution by the banking industry in the areas of SME resolution (for which banks may put in place a Robust Monitoring Process), Bank-Led Resolution, AMC/AIF-led resolution, resolution through the Insolvency and Bankruptcy Code, and an asset trading platform. Banks have initiated steps for taking forward the suggestions with due approvals.

A number of measures have been taken to streamline recovery and introduce innovative methods for recovery of NPAs. The Insolvency and Bankruptcy Code, 2016 (IBC) has been enacted to create a unified framework for resolving insolvency and bankruptcy matters. Under this, by adopting a creditor-in-saddle approach, with the interim resolution professional taking over management of affairs of corporate debtor at the outset, the incentive to resort to abuse of the legal system has been taken away. This, coupled with debarment of wilful defaulters and persons associated with NPA accounts from the resolution process, has effected a fundamental change in the creditor-debtor relationship. The Banking Regulation Act, 1949 has been amended, to provide for authorisation to RBI to issue directions to banks to initiate the insolvency resolution process under IBC. As per RBI’s directions, cases have been filed under IBC before the National Company Law Tribunal (NCLT) in respect of 39 large defaulters, amounting to about ₹ 2.69 lakh crore funded exposure (as of December 2017).

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 has been amended for faster recovery, with provision for three months imprisonment in case the borrower does not provide asset details and for the lender to get possession of mortgaged property within 30 days. Also, six new Debts Recovery Tribunal have been established to expedite recovery.

In addition, under the PSB Reforms Agenda announced by the Government, PSBs have committed to clean and commercially prudent business through Stressed Asset Management Verticals for focussed recovery, rigorous due diligence and appraisal for sanction by scrutinising group balance sheets, at least 10% share in consortium lending, ring-fencing of cash flows, initiating use of technology and analytics for comprehensive due diligence across data sources, building capacity for techno-economic valuation, clean and effective post-sanction follow-up on large-value accounts by tying up with Agencies for Specialised Monitoring, and strict segregation of pre and post-sanction roles for enhanced accountability.

This was stated by Shri Shiv Pratap Shukla, Minister of State for Finance in written reply to a question in Rajya Sabha today.

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DSM/RM/KA

Insolvency creditor-in-saddle approach strengthens recovery under IBC; RBI authorisation and SARFAESI reforms enhance bank-led resolution. Five-pronged framework: SME resolution with a Robust Monitoring Process, bank-led restructuring, AMC/AIF-led resolution, insolvency resolution under the Insolvency and Bankruptcy Code using a creditor-in-saddle approach that removes management control and excludes wilful defaulters, and an asset trading platform; legislative amendments empower the central bank to direct insolvency initiation and SARFAESI amendments and tribunal expansion aim to accelerate recoveries.