Thousands of companies have reportedly started paying their outstanding dues to banks and vendors in order to avoid any action being initiated under the Insolvency and Bankruptcy Code (IBC). According to a report in Times of India, over 2,100 companies have cleared their dues amounting to Rs 83,000 crore after the government amended the IBC to bar promoters of companies undergoing the resolution process from bidding for their own companies.
Many big names of the corporate world were not able to participate in the bidding process because of their outstanding dues. Following the criticism later on a clause was introduced to allow promoters to participate in the bidding process if they cleared the dues. The government prohibited promoters of defaulting companies from bidding citing the ethical reason that promoters may get same assets at the discounted price. According to IBBI website so far 103 companies have been liquidated, including well-known names such as Rotomac Global, LML and Gujrat NRE Coke.
The central bank regulator changed its stance towards divergence of loans on February 12. According to new rules, banks consider it as default if the payment is delayed even by a day. Earlier the defaulter was given the period of 90 days before being classified as the bad loan. The company also has to submit a resolution plan in 180 days and any failure on that front would result in insolvency proceedings against the company. In some cases, the limit of 180 days can be extended by another 90 days.
The RBI circular stated, “All lenders must put in place board-approved policies for resolution of stressed assets under this framework, including the timelines for resolution. As soon as there is a default in the borrower entity’s account with any lender, all lenders —singly or jointly — shall initiate steps to cure the default.” A loan is classified as an NPA if dues are unpaid for 90 days.