Indian companies want RBI to dilute notice banning debt recast

Indian companies are hoping the new leadership in the RBI will water down its “draconian” February 12 circular banning all kinds of debt restructuring.

“Many mid-sized and small companies are facing liquidity crisis due to external factors (like a rise crude oil prices) and though the RBI was apprised of these problems, there was no relief,” said the head of a power company.
“The circular will send more companies to the National Company Law Tribunal (NCLT) under the IBC (Insolvency and Bankruptcy Code) because banks are not ready to take any action, citing the RBI,” he said. 
“Many companies had to sack employees,” he said. At present 1,000 companies are facing IBC proceedings with very few takers for assets of smaller companies.
The chief executive officer (CEO) of a large pharmaceutical company said Urjit Patel as RBI governor was uncommunicative, and seldom responded to industry’s representations. The CEO added the liquidity situation needed easing. Banks have excess capital, but they are not allowed to lend because of inflation concerns, he said.

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“Every time the RBI has made projections on inflation, the real figures (when they come) have been better,” he said.

According to a promoter of a telecommunications firm, the circular has been challenged by a number of companies in the Supreme Court and in high courts. “The circular said there needed to be 100 per cent voting for any debt-restructuring proposal. As none of the banks wants to take risk, fearing regulatory action, no proposal is getting cleared,” he said. 

In most cases, Life Insurance Corporation, Power Finance Corporation and Rural Electrification Corporation (REC) are not giving consent to debt-restructuring proposals. 

The Supreme Court will hear the petition filed by the Power Producers’ Association in January against the circular. All petitions against the circular pending in high courts are combined with the power producers’ petition. 

Electricity producers are worried that lack of debt restructuring will lead to 70-80 power companies shutting down. 

The RBI started cleaning up bad debts of banks in June last year when it sent the first batch of 12 large companies to the NCLT for debt resolution. The haircut to be taken by lenders on these companies, on average, is around 50 per cent.

(With inputs from Sohini Das)

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