How tweaks in IBC and partial credit guarantee scheme affect real estate sector
According to one of the amendments, financial creditors will now have to meet an additional threshold to take a company to bankruptcy court.
The Union Cabinet on Wednesday approved key amendments to the Insolvency and Bankruptcy Code (IBC) Bill which may have a direct impact on the country’s real estate sector and its stakeholders.
According to one of the amendments, financial creditors will now have to meet an additional threshold to take a company to bankruptcy court. For real estate, the Bill specifically stipulates that insolvency action can be initiated only if 10%, or 100 homebuyers (whichever is lower) or debenture holders, agree to the move.
“Additional thresholds introduced for financial creditors represented by an authorized representative due to large numbers in order to prevent frivolous triggering of Corporate Insolvency Resolution Process (CIRP),” a government release said.
The amendment assumes significance as a number of cases have been reported in the recent past where a single homebuyer has approached the National Company Law Tribunal (NCLT) invoking provisions of the IBC.
In a related development, the Cabinet also approved small but significant tweaks in the partial credit guarantee scheme announced in Budget 2019 to improve liquidity for cash-starved non-banking financial companies (NBFCs) and housing finance companies (HFCs).
Public sector banks will now be allowed to buy ‘BBB+’ rated assets of NBFCs and HFCs as well compared with the earlier rule that only ‘AA -rated assets will get the benefit of the partial credit guarantee. Lowering the limit will make more NBFCs and HFCs eligible for funds.
The criteria to avail the scheme has been changed to cover NBFCs and HFCs which may have been overdue on their loans by up to 30 days as of August 2018.
The scheme will remain open until June 30, 2020, or till assets worth ₹1 lakh crore are bought. The finance minister has been empowered to extend the scheme by three months.
“The proposed government guarantee support and resultant pool buyouts will help address NBFCs/HFCs resolve their temporary liquidity or cash flow mismatch issues, and enable them to continue contributing to credit creation and providing last mile lending to borrowers, thereby spurring economic growth,” the government said in its statement.
The government’s partial credit guarantee scheme covers bonds of up to ₹1 trillion, with the amount of overall guarantee being limited to first loss of up to 10 per cent of fair value of assets being purchased by the banks under the Scheme, or ₹10,000 crore, whichever is lower.
