Banking and finance update

1. RBI IDENTIFIES ACCOUNTS FOR
INSOLVENCY RESOLUTION
June 14, 2017
MUMBAI I DELHI I BENGALURU I KOLKATA I
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M U M B AI I D E L H I I B E N G AL U R U I K O L K A T A I C H E N N AI BANKING AND FINANCE UPDATE

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Banking & Finance Update: RBI identifies accounts for insolvency resolution
Introduction
In the last 6 months since the corporate insolvency regime
kicked in, very few applications have been filed by banks to
initiate a corporate insolvency resolution process under the
Insolvency and Bankruptcy Code, 2016 (“Code”).
One of the concerns for banks while dealing with stressed assets
has been the apprehension of bank officials coming under
scrutiny if any of their decisions related to resolution of stressed
assets lead to legitimate commercial losses. Whilst amendments
have been proposed to the Prevention of Corruption Act, 1988 in
order to address such apprehensions, the amendments are still
awaiting the Parliament’s clearance.
Another step in the direction of aiding prompt resolution of
stressed assets by banks was the Banking Regulation
(Amendment) Ordinance, 2017 (“Ordinance”). Pursuant to the
Ordinance, which was promulgated on May 4, 2017, the
Banking Regulation Act, 1949 (“Act”) was amended. Section
35AA was inserted in the Act, which provides that the Central
Government may authorise the Reserve Bank of India (“RBI”) to
issue directions to any bank to initiate insolvency resolution
process under the Code on the occurrence of a default (as
defined in the Code).
Further, section 35AB was inserted in the Act, which empowers
RBI to issue directions to banks for resolution of stressed assets.
RBI was also empowered to specify one or more authorities or
committees, having such members as RBI may appoint or
approve for appointment, to advise banks on resolution of
stressed assets.
On June 13, 2017, the Reserve Bank of India (“RBI”) issued a
press release in connection with the accounts identified for
reference under the Code.
Action plan to implement the
Ordinance
RBI, in a press release issued on May 22, 2017, outlined the steps
taken and those proposed to be taken pursuant to the
Ordinance.
The press release mentioned that RBI was working on a
framework to facilitate an objective and consistent decision
making process with regard to cases that may be determined
for reference for resolution under the Code. It was further
mentioned that RBI would be constituting a committee
comprising majorly of its independent board members to advise
it in this matter.
Identification of accounts for
insolvency resolution
An Internal Advisory Committee (“IAC”) was constituted by RBI,
which held its first meeting on June 12, 2017. At this stage, the
focus of the IAC is on large stressed accounts and accordingly
the IAC took up for consideration the accounts which were

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Banking & Finance Update: RBI identifies accounts for insolvency resolution
classified partly or wholly as non-performing assets (“NPA”) from
amongst the top 500 exposures in the banking system.
All accounts with fund and non-fund based outstanding amount
greater than Rs. 5,000 crore, with 60% or more classified as NPAs
by banks as of March 31, 2016, were recommended by the IAC
for reference under the Code. Based on this criteria, 12 accounts
totaling about 25% of the current gross NPAs of the banking
system qualified for immediate reference under the Code.
In furtherance of the above, RBI will be issuing directions to banks
to initiate an insolvency resolution process under the Code in
respect of the identified accounts and such cases will be
accorded priority by the National Company Law Tribunal (i.e.
the Adjudicating Authority under the Code).
Resolution of other accounts
In connection with NPAs which do not qualify under the
aforesaid criteria, the IAC has recommended that banks should
finalise a resolution plan within 6 months. In cases where a
viable resolution plan is not agreed upon within 6 months, banks
will be required to initiate the insolvency resolution process
under the Code.
RBI will also be releasing the resolution framework with respect
to other NPA accounts.
Provisioning norms
Currently, there is no relaxation of provisioning norms in respect
of accounts where an insolvency resolution process has been
initiated.
RBI’s press release provides that revised provisioning norms will
be issued for cases accepted for resolution under the Code.

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Banking & Finance Update: RBI identifies accounts for insolvency resolution
DISCLAIMER
This document is merely intended as an update and is merely for
informational purposes. This document should not be construed as
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