NPAs: challenge is to avoid delays’:

NPAs: challenge is to avoid delays’:

Context

• The Reserve Bank of India (RBI) has come up with a suggestion asking banks to file insolvency and bankruptcy proceedings for 12 loan accounts, in which banks had an exposure of more than Rs. 5,000 crore each.
• Bankers worry that appeals to other courts and the workload at the National Companies Law Tribunal (NCLT) may push deadlines out further.

What is the issue?

• The central bank had asked banks to file bankruptcy cases with the National Companies Law Tribunal (NCLT) within June 30.
• The RBI had also advised banks to make higher provisions for these accounts to be referred to the Tribunal under the Insolvency and Bankruptcy Code (IBC).

Why was this move taken?

• According to RBI deputy governor Viral Acharya, the move was intended to improve bank provision coverage ratios and to ensure that banks are fully protected against likely losses in the resolution process.

How is it going to function?

• Recently, RBI sent banks another list comprising 26 accounts, which they must resolve by December 31, failing which those cases have to be taken up for bankruptcy as well.
• NCLT is expected to admit or reject a case within 14 days of a case being filed. However, bankers said the time taken by NCLT in some of the cases was beyond 14 days.
• After a case is admitted, insolvency resolution professionals (IRP) are put on the job to find a resolution process.
• In case no resolution is possible within six months, another three months’ extension can be given.
• However, if no resolution is reached even in extended period, the company goes for liquidation.
• Swift, time-bound resolution or liquidation of stressed assets will be critical for de-clogging bank balance sheets and for efficient reallocation of capital.
• Bankers and insolvency professionals said there is a need to beef up the infrastructure of NCLT as many cases apart from bankruptcy are also being filed at NCLT.

What are pressures on the bench taking decision?

• The Bench is under pressure because there are not enough number of Judges.
• The same bench will be hearing IBC matters, other company law matters, other merger matters, conversion of private limited company to public limited company — all issues are going to the same bench.

What is the requirement?

• A separate bench for insolvency and bankruptcy cases is the need of the hour.
• Change from single-member benches to double-member benches.