RBI Asks ICICI Bank To Hold Off On Insolvency Proceedings Against Jaiprakash Associates 

The Reserve Bank of India has asked banks to 'temporarily' refrain from initiating insolvency proceedings against corporate debtor Jaiprakash Associates Ltd., even as they await clarity from the Supreme Court in the matter.

This comes after a Supreme Court order barred the company’s directors and promoters and their family members from selling assets until further orders. The court has ordered the company to deposit Rs 2,000 crore with it to protect the interests of over 32,000 stranded home buyers.

According to two bankers in the know, the regulator has communicated to consortium leader ICICI Bank Ltd. that it should try and seek clarity from the Supreme Court on whether any insolvency proceedings can be initiated against the company. The bankers spoke anonymously.

ICICI Bank and the RBI did not respond to email queries sent on Thursday.

The Economic Times on Thursday had first reported that banks have been instructed to "hold off" on insolvency proceedings against Jaiprakash Associates.

The apex court’s order against Jaiprakash Associates comes after home buyers objected to an insolvency case filed by IDBI Bank Ltd. in the Jaypee Infratech Ltd. matter. Home buyers claimed that the residential complex which was to be built by Jaypee Infratech would be in trouble if the company is liquidated and that these buyers would not get compensated adequately as they do not feature on the list of creditors who stand to get paid out under the Insolvency and Bankruptcy Code.

Jaiprakash Associates is among the largest to feature on RBI’s second list of 29 stressed accounts, released to bankers in August.

According to bankers the company’s outstanding debt stands at Rs 29,000 crore. The banks involved had time till Dec. 13, 2017, to resolve the case after which it was to be referred to insolvency.

But with the insolvency route blocked for now lenders are in limbo as an earlier request to RBI for more time to work on a restructuring plan was rejected on grounds that the plan was not sustainable.

Banks are mandated by RBI to provide against 50 percent of all secured exposures and 100 percent against all unsecured exposures when a company is undergoing insolvency proceedings.

In the event of a delay in initiating insolvency, as instructed by the regulator, banks may get some relief on the provisioning requirement in the case.