Lower Risk Weight for moving to NCLT?

According to a news report in Economic Times, Reserve Bank of India (RBI) is weighing a plan to ‘incentivise’ lenders to take errant borrowers to bankruptcy court.

Supreme Court struck down RBI’s February 12, 2018 circular, which directed banks to take defaulting companies (with debt of Rs.2000 crore and above) to NCLT if resolution plan is not implemented within 180 days.

After the Supreme court decision, RBI is planning to give some incentive to banks to move to IBC in case of defaults by large borrowers.

“According to people aware of the matter, RBI is considering a proposal to assign a ‘lower risk weight’ on loans to companies against which action has been initiated under the Insolvency & Bankruptcy Code (IBC) of 2016.”

RBI is working on new guidelines for resolution of stressed asseta after the supreme court decision.
A lower risk weight would help banks in conserving capital, where the public sector banks are struggling most. This will incentivize the banks to take a timely decision to move to NCLT for recovery of their dues.