The Reserve Bank of India has advised banks to file for insolvency proceedings on their own rather than waiting for its instructions. The regulator has said that prompt action by lenders will help realise best value of these stressed assets. The RBI in its report on trends and progress in the banking industry has also said that lenders should use the insolvency and bankruptcy code to mend the quality of their books.
"Banks can take advantage of the IBC to clean up their balance sheets and improve performance on a sustained basis to remain competitive," the regulator said. "Instead of waiting for regulatory directions, banks can file for insolvency proceedings on their own to realise promptly the best value for their assets."
The banking regulator also said that lenders need to strengthen their due diligence, credit appraisal and loan monitoring systems to minimise the risks of such events occurring again.
In May this year the RBI was empowered through an ordinance to issue directions to banks to initiate insolvency proceedings against borrowers for resolution of stressed assets. Shortly after that, in June the regulator shortlisted 12 companies that would undergo the bankruptcy process having a total debt of over Rs 2 lakh crore. Then in august it sent a second list of 28 defaulters to creditors to initiate debt resolution before December 13, failing which these cases have to be sent to NCLT before December 31.
Banks say they are already taking voluntary action to push stressed cases towards NCLT for better resolution. "We are voluntarily taking action in some cases, infact monitoring of the SMA accounts have been intensified where we have put early warning systems to find resolutions at an early stage,"said B Sriram, MD, SBI in an interview with ET earlier this month. "If the stress does become more serious we have various schemes of the RBI but we expect that the cases that are before the NCLT today will give us a guidance in terms of how to resolve under a judicial system faster."