Uday Kotak, the CEO of Kotak Mahindra Bank, urged for a reconsideration of the financial sector resolution process utilizing the NCLT mechanism to tackle the problem of low recovery rates for lenders.

What Happened? Kotak pointed out that in the cases of Reliance Capital and Srei Group, the resolution mechanism resulted in a low recovery and below liquidation value for creditors.

“NBFC resolution. RCap, Srei’s experience signal poor recovery below liquidation value for creditors. The NCLT process is also tardy whether IBC or otherwise. In IL&FS too while the recovery ratio is better, the legal process takes long. Time for policy relook at financial sector resolution,” Kotak tweeted early on Monday.

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What’s Going On With Reliance Capital? The billionaire banker addresses his take on financial sector resolution processes after media reports stated that Reliance Capital bidders were reluctant in increasing their offers for the bankrupt company. This was causing RCap lenders to worry that their loan recovery may fall below the liquidation value of ₹12,500-13,000 crore for the financial services company.

The Reserve Bank referred Reliance Capital for bankruptcy resolution in November 2021 due to its default on bonds worth ₹24,000 crore. The company appointed Nageswara Rao Y. as the administrator for the corporate insolvency resolution process as a result.

Similarly, in the same year, the RBI took over the boards of Srei Infrastructure Finance Ltd (SIFL) and Srei Equipment Finance Ltd (SEFL) in October 2021 due to repayment defaults and governance concerns in the insolvency proceedings of infrastructure company Srei. The banking regulator then requested NCLT to begin consolidated insolvency proceedings against both companies.

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