Is resolution under IBC is not very effective? Well, experts have multiple opinions about it. While some experts feel that existing management will continue to play a significant role even after giving control to resolution professionals, some feel that the introduction of the new code will effectively rectify the problems of non performing asset.
As far as the procedure is concerned, once the IBC process is initiated, the control shifts to insolvency professionals from the existing management. However, on all practical grounds, the day-to-day operations are in very much control of the management.
Since the resolution timelines are very strict, some companies may go in the state of liquidation, and there is a negative effect on the banks. It happens more prominently in cases where collateral is relatively lesser.
RBI announces plans to resolve troubled loans
RBI or The Reserve Bank of India recently took a bold step by announcing plans so that the troubled loan cases pending with company law tribunal and other courts can be resolved up to a large extent.
It is said that the 12 cases of large borrowers contribute to almost one-fourth of the non-performing assets or NPA.
Out of these accounts, the majority belong to the power, steel, and other infrastructure sectors. Engineering projects, construction projects, procurement companies are to name a few.
As there will be meaningful resolutions under the IBC plan, it will create a good rapport, and the load on national company law appellate tribunal will greatly reduce.
RBI has instructed the banks to review the cases well and do npa management properly. A timeline of six months has been given to the companies.
After the action plan announced by the RBI, the NPA ordinance was passed last month. According to it, the central bank gets a further authority to intervene in the existing clauses of NPA resolution.
Since the timeline is six months which can’t be extended beyond 90 days further, the resolution can be expected fast. The company will be liquidated after it, and the resolution process will help in recoveries of defaulted loans.
As the asset quality of lenders comes down day by day, RBI and other authorities are supposed to follow a new set of reforms to correct the situation.