“We have written to RBI seeking extension of inter-creditor agreement deadline of January 7 by three months so that cases are not referred to NCLT,” said a senior public sector banker.
Banks are willing to make the additional 20% provision that breaching the deadline entails but want the window of resolution open until the March 31 financial year end to avoid the value destruction that they say would follow by taking the NCLT route as prescribed by the Insolvency and Bankruptcy Code (IBC).
The ICA mechanism was established in order to arrive at a resolution plan within a specific period (30+180 days) for bad loans without entering the NCLT process.
Lenders need to come up with an ICA resolution plan for loans worth Rs 3 lakh crore by January 7— the deadline for most stressed accounts — failing which they have to make a 20% provision and refer cases to the NCLT within 30 days.
“Value destruction happens when cases are sent to NCLT.”
Of the 2,542 cases in which the resolution process had started until the end of September, 186 have been closed on appeal or review, or settled; 116 have been withdrawn; 587 have ended in orders for liquidation; and 156 have ended in approval of the resolution plan, data showed. The realisation of 34% of the claims is from 27 companies.
Resolution plans under the ICA framework are taking longer than anticipated because banks and non-bank lenders such as mutual funds and insurance companies are at loggerheads. With creditors unable to agree on buyers or the restructuring mechanism, it’s taking several weeks to arrive at any consensus. The delays will eat into bank earnings.
“No resolution plan has been implemented in many cases and these cases are likely to be referred to NCLT,” said Chandan Churiwal, senior vice president, Assets Care & Reconstruction Enterprises.
The central bank’s June 7, 2019, circular requires banks to put in place an ICA within a month of the review period. To implement a resolution plan in 180 days, financial institutions enter into an ICA, authorising the lead bank to put it into action. The lead bank then prepares the plan that includes empanelling turnaround specialists and industry experts for operational revival of the asset. In case the chief lender is unable to complete the process on time, the asset moves to the NCLT. Lenders need to come up with an ICA resolution plan for loans worth 3 lakh cr by January 7.