Finance minister Nirmala Sitharaman is expected to meet the heads of the public sector banks on December 28 to discuss the credit flow to micro, small and medium enterprises (MSMEs) and the status of IBC cases, banking sources told FE.

The government wants to review the progress following various steps taken by it in recent past. In September, Sitharaman asked banks not to declare stressed MSME loans as NPAs till March 2020.

This meeting is taking place at a time when banks have been referring unresolved stressed companies to the National Company Law Tribunal (NCLT). Lenders are reeling under pressure to adhere to the provisioning timelines for resolution of stressed assets. According to the June 7 circular, the banks have to make an additional provisioning of 20% if the resolution plan is not implemented within six months, and another 15% if resolution plan is not implemented within a year, taking the burden of additional provisioning to 35%.

The June 7 circular of the Reserve Bank of India (RBI), however, allows for reversal of this provisioning if a resolution is pursued under the Insolvency and Bankruptcy Code (IBC).

The successful resolution of Essar Steel has encouraged banks to take the IBC route. Now, banks are hoping to soon recover around Rs 25,000 crore from Bhushan Power & Steel (BPSL) and Alok Industries. The resolution of BPSL is stuck due to ongoing investigations into the fraud perpetrated by erstwhile promoters of the company.

Banks have also come under regulatory scanner due to lapses in corporate governance. The RBI is in the process of issuing draft guidelines on corporate governance for regulated entities. The banking regulator cautioned in a report on trend and progress that recent governance failures in some financial entities have brought to the fore the impact of the quality of corporate governance on efficiency in allocation of resources as well as on financial stability.

Published On : 27-12-2019

Source : Financial Express