The Centre is likely to carve out a special resolution window under Section 227 of the Insolvency and Bankruptcy Code (IBC) to deal with NBFCs, a government official told CNBC-TV18 on Thursday.
The NBFCs donât come under the IBC currently, however, this has been long demanded by the industry. Among those who have frequently put forward their demand to bring NBFCs under IBC is also Uday Kotak, managing director of Kotak Mahindra Bank.
The NBFC crisis grew deeper and deeper after a cash crunch hit IL&FS and forced it to default on interest payments. Just a few days back on September 13, Altico Capital India defaulted on the interest payment obligation on ECB (external commercial borrowing) availed from the UAE-based Mashreqbank.
Along with the big NBFCs, that faced critical situations lately,
the lenders too went through a lot of hardship due to them not being able to recover their exposure to these firms, causing fear among investors.
With the introduction of the special window, the rules of which will be notified in the next two weeks, the government will avoid regular IBC process that is followed in the resolution of other cases, the government official, who did not want to be named, said.
Under the new window, the Centre will give special dispensation on who can initiate the move, the official said, adding these rules will differ from the current rules under IBC.
Section 227 of IBC says: "Notwithstanding anything to the contrary examined in this Code or any other law for the time being in force, the Central Government may, if it considers necessary, in consultation with the appropriate financial sector regulators, notify financial service providers or categories of financial service providers for the purpose of their insolvency and liquidation proceedings, which may be conducted under this Code, in such manner as may be prescribed."
According to the official CNBC-TV18 spoke to, the Ministry of Corporate Affairs is not required to approach the Cabinet for the approval of the special window.
"The interim measure envisaged for a calibrated approach to deal with special cases or class of cases," said the official.Â "The government wants to avoid any adverse impact on the economy."In an exclusive interview with CNBC-TV18 recently,
RBI governor Shaktikanta Das said that the RBI was concerned about the situation and informed that it was monitoring the top 50 NBFCs which cover about 70-75 percent of the total loan book. The RBI governor also said that the central bank was doing a âdeep diveâ into a few of these cases to gauge the situation better.