Bankruptcy Rescue Rules Tightened, RBI Mandates Unique Code for Large Borrowers – India Regulatory Brief

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Insolvency board enforces stringent tests for reviving defaulting companies

The Insolvency and Bankruptcy Board of India (IBBI) has amended its rules governing lenders who invest in bankrupt companies. Promoters or any party proposing a rescue plan for a sinking company will be subject to strict tests of creditworthiness and credibility. The rescue plan must provide details explaining the background of the promoter, including any convictions, disqualifications, criminal proceedings, and the categorization of wilful defaulters.

This move puts greater responsibility on the professionals working out the resolution and the committee of creditors, to ensure that defaulting companies do not fall back into the hands of their original promoters. Lenders have long feared that promoters regaining control of defaulting entities cast a doubt on the credibility of the lending process.


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No need for separate form for PAN/TAN

The Ministry of Corporate Affairs (MCA) recently issued a clarification that, Permanent Account Number (PAN)/ Tax Deduction and Collection Account Number (TAN) forms do not have to be submitted separately, after filling the Simplified Proforma for Incorporating a Company Electronically (SPICe) e-form. PAN and TAN will now be issued based on the details submitted in the SPICe e-form.

This latest step is a part of the Central Board of Direct Taxes’ (CBDT’s) measures towards improving the ease of doing business for new companies. The CBDT had previously directed the MCA to issue the PAN/TAN within one day. New companies are also issued e–PAN in addition to the physical PAN card. The SPICe e-forms were introduced in October 2016 to facilitate speedy incorporation of companies and remove the requirement of filling multiple forms.

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RBI mandates unique code for all large corporate borrowers

The Reserve Bank of India (RBI) has made it mandatory for corporate borrowers with an exposure of US$767,401 (Rs50 million) and above to obtain a 20-digit Legal Entity Identifier (LEI) from banks – a move that will significantly improve risk management in India’s stressed banking sector.

The LEI code is a key measure to improve the quality and accuracy of financial data for better risk management post the global financial crisis. According to the notification, large corporate borrowers must obtain the code for their parent as well as subsidiaries and associates. Borrowers who do not obtain an LEI within the stipulated time-period will not be granted renewal or enhancement of credit facilities.

  • Borrowers with an exposure of US$153 million (Rs10 billion) and more to the banking system must obtain the code by March 31, 2018.
  • Those between US$76.7 million (Rs5 billion) and US$153 million (Rs10 billion) by June 30, 2018.
  • Corporates with an exposure between US$15.3 million (RS 1 billion) and US$76.5 million (Rs5 billion) must get the code by March 31, 2019, and those with US$7.6-15.3 million (Rs500 million-1 billion) by December 31, 2019.

For borrowers of US$767,401 (Rs50 million) to US$7.6 million (Rs500 million), a deadline for obtaining LEI code will be issued in due course.

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