Lenders to Religare Finvest Ltd passed a resolution early last week to request the Reserve Bank of India (RBI) to start insolvency proceedings against the finance company after the banking regulator rejected the management’s proposal to grant a ‘change of ownership status’ making it difficult to implement debt restructuring plan under the current regulatory framework, said two people aware about the development.
Under the Insolvency and Bankruptcy Code (IBC) framework, only the RBI can refer a finance company for insolvency proceedings. Lenders are of the view that a resolution under IBC will be a transparent process thus generate interest among prospective buyers, the people said.
The development comes at a time when the Delhi High Court stayed until the next hearing the RBI’s decision to deny the change in ownership status of Religare Finvest Ltd (RFL), according to stock exchange disclosure made by RFL on February 20.
On February 11, RBI communicated to Religare that ‘restructuring of RFL cannot be implemented with Religare Enterprises Ltd (REL) continuing as a promoter, as RFL has been declared fraud exposure by lenders.’ This communication prompted RFL to seek legal remedy, a third person said.
The RBI’s June 7, 2019 circular restricts banks from restructuring any account that is classified as fraud unless there is a change in ownership of that borrower.
In response to ET inquiry on the lenders’ decision to refer it to IBC, RFL said that since the “Delhi High Court has stayed RBI’s communication we are of the view that there is no rationale for any lender to approach IBC for a court-monitored resolution at this juncture.” On RBI rejecting the change of ownership status, RFL said “no such rejection has taken place.”
If there is a delay in getting RBI approval for IBC, lenders would consider finding a new buyer outside the IBC purview, said one of the persons cited above.
The RBI has gained confidence in the resolution under IBC after the sale of Dewan Housing Finance Ltd to Piramal group and has now admitted Reliance Capital and the twin Srei companies for insolvency proceedings, the people said.