After a November 15 notification by the central government has paved the way for the financial sector companies like DHFL coming under Insolvency and Bankruptcy Code (IBC), troubled companies in the sector such as DHFL and Altico Capital could be the first ones to end up at NCLT.
Reserve Bank of India is reportedly in the process of consulting with major lenders of DHFL if sending the company to the National Company Law Tribunal is the right course. The process appears to be that RBI consults the lenders and if they agree an internal decision is first taken and the list of companies to be referred to the NCLT for insolvency and bankruptcy resolution is then sent to the Department of Financial Services under the Ministry of Finance and subsequently NCLT is approached.
State Bank of India, with an exposure of over Rs 10, 000 crore is one of the key lenders to DHFL. The overall debts owed by DHFL is said to be close to Rs 84,000 crore. The lenders to DHFL had at one point planned to convert part of the moneys owned by the firm to them into equity and take a majority position.
The other firm, Altico Capital, though under the RBI glare, may escape being referred to the NCLT since it is working on some debt resolution plan internally.
The original Insolvency and Bankruptcy Code or IBC legislation had excluded companies in the financial services sector, which constitute mainly banks and non-banking financing companies from the purview of the Act.
In a notification released on November 15, the government has altered this and said that companies in the financial services sector with assets of at least Rs 500 crore can be referred to the NCLT. However, the government has left it to RBI to take a call on which is the fit case for being sent to NCLT. Banks will however continue to be out of the IBC Act.
The terminology used by the Corporate Affairs Ministry is “systemically important financial service providers”. The meaning implied here is that by the collapsing of a financial services provider, if the entire system could get impacted, it does not want that to happen. The case of IL&FS was considered one such. The term “systemically important” was used by the RBI Governor too in his interactions with the media, while referring to NBFCs.