The Reserve Bank of India on Tuesday identified 12 stressed accounts—constituting 25 percent of gross bad loans—for immediate resolution under the Insolvency and Bankruptcy Code.
But will the newly formed IBC and NCLT be ready to handle these cases? Tapan Ray, Economic Affairs Secretary told CNBC-TV18 that most regulations of IBC are in place, so the framework is ready. Now it is up to the creditors to take advantage of it.
He is confident that both the IBC and NCLT are capable of handling the cases referred to it. He said they aim to further strengthen the NCLT with induction of more judicial and technical members.
The infrastructure is in place to handle these big cases and new framework will help resolve the NPA issue, he said.
Below is the transcript of the interview.
Q: After the NPA resolution details, the RBI circular which has come late last night, do you see that the 12 cases that RBI says needs to be given to the IBC for an immediate resolution, do you think IBC is ready for it because IBC is in the nascent stage. It will be water testing IBC. Do you think six months of time for a new agency to takeover such a huge amount of cases which might sound low in number but when it comes to the volume they are about Rs 2 lakh crore involved in it. Do you think IBC will be able to handle it?
A: Certainly you must notice that we started that National Company Law Tribunal more than a year back on June 1 2016. Subsequently the insolvency board was created on October 1 2016. Most of the regulations of IBC is in place since December. So, the framework is ready. The adjudicating authority is essentially the NCLT which is already there for a year and we have 10 benches in India and two in Mumbai. So, infrastructurally we are quite ready to handle this. IBC court cases have also started, of course these are bigger ones. I think the whole infrastructure is in place to handle these cases.
Q: NCLT again an year old body and whether NCLT is prepared to handle when it comes to manpower, when it comes to the presence, when it comes to dealing with cases directly with the corporates, do you think because there is no precedence available for the NCLT also to deal with these cases. Do you think NCLT is prepared?
A: NCLT is prepared. We are further strengthening the NLCT with induction of more judicial and technical members. So, it is going to be there to handle these cases.
Q: Coming to the RBI provisioning of these NPAs, already the NPAs which are there are since March 2016 and 25-40 percent provisioning has already been made but what about the remaining? Banks do not have that much of capital available, do you think further provisioning of NPAs would definitely require more capital but capital infusion still we are seeing government is in the silent mode though provisions were made in the Budget also and you handled DEA. If you can help us with few details on it?
A: It is fair to ask this to the department of financial services. They along with RBI will take a call on that.
Q: What about the cases which are beyond these 12 cases where the NPAs are still there. Do you think the threat of insolvency is enough for the banks and the promoters to come out on a faster resolution rather because these 12 cases definitely go to the IBC, what about the remaining cases?
A: The framework exists and this is a good framework, it helps solve the insolvency in a shorter period of time. I think it is a win-win. If the system operates well for 12 cases, it is surely going to operate for others as well.
So, it is a beginning, I am sure we will do well in this.
Q: When we talk of the process starting, there are lot of stressed assets which have not yet been classified as NPAs as per the definition that exists. Banks also understand that they are NPAs and so does the government. To not to have this situation boil down further to an extent where it becomes hard to handle, already over Rs 7 lakh crore is what the total amount of NPAs is and if the text book definition gets revised and maybe it will lead to a further increase in this amount. How do you think banks, IBC and all they will deal with such cases?A: I think the framework is there. It is upto the creditors to take advantage of that and earlier they do, better it is before it gets into a worse situation for whoever is involved.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.