Special rules to deal with NBFCs and HFCs under IBC in next two weeks

Even as banks are hopeful of reaching a possible resolution for the troubled Dewan Housing Finance Corporation (DHFL), the government is gearing up to have rules and laws in place to deal with such cases in future under the Insolvency and Bankruptcy Code (IBC).

Government officials have told CNBC-TV18 that, “the ministry of corporate affairs is soon going to come with an interim measure to deal with non-banking finance companies (NBFCs) and housing finance companies (HFCs) under IBC.”

Government plans to carve out a special window under section 227 of IBC to facilitate this move.

Section 227 of IBC says that “power of central government to notify financial service providers, etc. 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.”

DHFL, one of the largest housing finance companies in India ran into trouble last year soon after the collapse of IL&FS. The total exposure of the banking sector to DHFL is estimated at about Rs 46,000 crore, including about Rs 32,000 crore direct (loan) exposure and about Rs 14,000 crore by way of investments in debt instruments issued by the company.

The government aims that with these rules, it can avoid regular IBC process to deal with NBFCs and HFCs and expects that the rules will be notified in the next two weeks, officials added.

The special window will include a special dispensation on “who can initiate or trigger the move, also will give comfort by special dispensation on a moratorium and to the resolution professionals,” government officials said.

“This interim measure is envisaged for a calibrated approach to deal with special cases or class of cases, and government might name these cases also in the rules,” the official said.

When it comes to procedures, the government is clear that the ministry of corporate affairs need not approach the cabinet for approval of this special window and it would rather go ahead with only notification of rules.

Since the rules under this special window will be different from the current rules under IBC, the government feels that it will protect such cases from having any adverse impact on the economy and will also bring in financial stability while dealing with NBFCs and HFCs under IBC.

Finance Minister Nirmala Sitharaman, who also holds the charge of Minister for corporate affairs has given her nod to her office to come up with the rules soon.