Monday, June 21

Strengthen NCLT infrastructure to speed up resolutions: RBI

Mumbai: The central bank has called for strengthening the infrastructure at the National Company Law Tribunals (NCLT) to ensure time-bound resolution of stressed-asset loans in the banking sector, where the problem of mounting bad debt has prompted curbs on the normal operations at several high-street lenders.

In its Trends and Progress in Banking for 2017-18 released on Friday, the Reserve bank of India (RBI) underscored the need to strengthen the NCLT infrastructure to accommodate the likely large number of cases that may be referred to the dedicated bankruptcy courts.

Better resolution will also have a bearing on the future of the loan repayment culture in India, where the Insolvency and Bankruptcy Code (IBC) was enacted in December 2016 to quicken insolvency resolutions.

“Minimising the time taken to resolve cases and the development of a conducive environment that discourages unnecessary delays assume importance,” RBI said in the report.

Indian courts have witnessed a growing number of applications from creditors and that trend is already beginning to challenge the existing infrastructure of the NCLT. The admission of more cases has also affected the pace of resolutions within the stipulated timelines, ratings firm ICRA said in a recent note.

The number of corporate debtors admitted by the NCLT but are yet to be resolved through the corporate insolvency resolution process rose to 816 as on September 30, from 723 as on June 30, despite the quarter having the highest closure of cases seen so far at 123, ICRA said. The RBI said that two entities play pivotal roles in determining the efficacy of the bad-debt resolution processes in the Indian context – the committee of creditors and the insolvency resolution professionals (IRPs). They need to ensure efficient outcomes while delicately balancing the interests of all stakeholders.

But at the same time, the RBI has reiterated that there is no alternative to proper credit appraisal and monitoring, internal controls and risk management, improved disclosures and efficient corporate governance – all of which must be strengthened to improve the efficiency of the whole process.

In this context, the proposed public credit registry (PCR) would aggregate information about borrowers from multiple agencies at one place and allow safe access to the data for all important stakeholders in the financial system.

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