Insolvency

Insolvency and Bankruptcy board sets up two panels

Insolvency and Bankruptcy Board of India (IBBI), which expects to soon operationalise the Insolvency and Bankruptcy Code, 2016 has set up two high-level panels to gather inputs from experts, including on service providers and corporate liquidation. To expedite operationalisation of the code, IBBI has already released three sets of regulations pertaining to Insolvency Professionals, Insolvency Agencies and Model Bye-Laws and Governing Board of Insolvency Professional Agencies.

Insolvency and Bankruptcy Code, 2016 seeks to ensure time-bound settlement of insolvency, faster turnaround of businesses and create a unified database of serial defaulters.

Panels

The advisory committee on services is headed by educationist Mohandas Pai and includes National Institute of Public Finance and Policy’s Professor Ajay N Shah, National Stock Exchange Vice-Chairman Ravi Narain, Sebi’s Executive Director J Ranganayakulu and senior lawyer Amarjit Singh Chandiok. The advisory committee on corporate insolvency and liquidation is headed by noted banker Uday Kotak and includes BSE CEO Ashishkumar Chauhan, Credit Information Bureau Chairman M V Nair and Corporate and Economic Research Group Advisory’s Chairperson Omkar Goswami. The two committees have begun their deliberations.

IBBI has been set up by the code to regulate professionals, agencies and information utilities (IUs) engaged in the resolution of insolvencies of companies.

Composition of IBBI

Apart from the chairman, M S Sahoo, IBBI will have 10 members. The four government-nominated members are Additional Secretary at the Ministry of Finance Ajay Tyagi, Joint Secretary at Ministry of Corporate Affairs Amardeep Singh Bhatia, Joint Secretary at the law ministry G S Yadav and RBI Legal Advisor Unnikrishnan A. Two other members would be outside experts. The process of selection of rest of the three members is on.

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RBI has introduced Incremental CRR

To absorb the surplus liquidity available in the banking system post demonetisation, the Reserve Bank of India (RBI) has mandated the banks to maintain incremental cash reserve ratio of 100% effective the fortnight ended November 26. It will be applicable to deposits made between September 16 and November 11 fortnights. According to RBI data, total deposits increased from Rs 97 lakh crore in the September 16 fortnight to Rs 101.1 lakh crore in the November 11 fortnight. This is expected to suck out Rs 3.24 lakh crores excess liquidity available in the banking system. The incremental CRR would be a temporary measure and will be reviewed on December 9 or even earlier.

Post demonetisation, there was a huge increase in deposits relative to the expansion in bank credit. Further, the move has been taken as the magnitude of surplus liquidity available in the system is expected increase in the fortnights ahead. As of November, banks have already deposited a record Rs 4.3 lakh crore with RBI. The objective of the move is to absorb excess liquidity from the banking system and leave adequate liquidity with banks to cater to the needs of the productive sectors of the economy. As a result of this move, banking shares have fallen by up to 4% in intra-day trade.

CRR is one of the RBI’s liquidity management tools. The Cash Reserve Ratio is the amount of funds that the banks are bound to keep with Reserve bank of India as a portion of their Net Demand and Time Liabilities (NDTL).

The objective of CRR is to ensure the liquidity and solvency of the Banks. The CRR is maintained fortnightly average basis. It is also used by the central bank to check inflation.

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IBBI notifies two regulations

Insolvency and Bankruptcy Board (IBBI) of India have notified two Regulations- the IBBI (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 and IBBI (Insolvency Professional Agencies) Regulations, 2016. The regulations have been notified by the IBBI in exercise of its powers conferred under section 240 of the Insolvency and Bankruptcy Code, 2016

The two regulations provide eligibility norms to be a Professional Member of an Insolvency Professional Agency and norms to get registered with the IBBI as an Insolvency Professional Agency. Accordingly, a company registered under Section 8 of the Companies Act, 2013 having a minimum net worth of Rs. 10 crore is eligible to be an Insolvency Professional Agency. Over half of its Directors should be independent directors and not more than one-fourth of the Directors can be insolvency professionals. It shall have Membership Committee(s), Monitoring Committee, Grievance Redressal Committee(s), and Disciplinary Committee(s) for the purposes of regulation and oversight of professional members.

Insolvency and Bankruptcy Code, 2016 seeks to ensure time-bound settlement of insolvency, faster turnaround of businesses and create a unified database of serial defaulters.

IBBI has been set up by the code to regulate professionals, agencies and information utilities (IUs) engaged in the resolution of insolvencies of companies.

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