Ship-building companies have petitioned the Supreme Court that the industry can survive only if the February 12 circular of the Reserve Bank of India (RBI) is quashed and set aside.
The Shipyards Association of India (SAI) has told the apex court that in case the order is not quashed or set aside, the circular must incorporate a few critical changes to make the industry viable.
The association said the threshold of 100 per cent approval of lenders be reduced to 50.1 per cent in value terms and the timeline of 180 days as mandated be increased to a period of at least 365 days or higher from the date of judgement.
The RBI has clarified that the approval threshold requirement of 100 per cent lenders is mis-conceived. Even if a miniscule of lenders objects, a borrower may work out separately with that lender, it said.
Quoting a research by the Indira Gandhi Institute of Development Research (IGIDR), SAI said the probability of resolution of asset within 180 days is less than 5 per cent and only after 360 days, the probability of resolution improves to 30-70 per cent. For the Shipyards, the 180-day period is too short to achieve resolutions that require longer gestation period to realise the amount from its order book.
The RBI posted that 180 days is a reasonable period for achieving implementation of a resolution plan and the circular is generic and sector-agnostic. And a 180-day window is provided only to find a financial resolution plan for the stress faced by the borrowers and not for resolution of sectoral issues.
The industry further presented a study by the IGIDR and the Insolvency and Bankruptcy Boar which stated that there is a lack of resolution plans. It asserted that resolution outside NCLT will maximise value for lenders as compared to the process under the Insolvency and Bankruptcy Code (IBC).
Since promulgation of the IBC, there have been changes in it twice and Regulations governing it seven times. Both Code and Regulations are evolving, so the mechanism for resolution of stressed assets outside the NCLT process must also evolve, taking to account these ground realities, the report said.
The report said the RBI circular overlooks the distinct stress and unique requirements of the shipbuilding sector which has already seen lenders losing more than Rs 30,000 crore through non-resolution of stressed assets.
The SAI, which said the ship-building is a strategic sector, wants the circular be made applicable to all those who are governed or regulated under the RBI Act including NBFCs and ARCs.
“All clarifications given by RBI in its written submissions with respect to full freedom to banks; generic, agnostic, sector neutral approach, lenders approval limit at 50.1 per cent in value terms, no restriction on any type of resolution should form part of the amended circular”, the association has submitted to the RBI.
“RBI’s rigid approach would directly affect the national security and also lead to huge losses to the exchequer” it said.