Muted Response Observed To Pre-Packaged Insolvency Process For MSMEs: RBI Governor

New Delhi, Jan 12 (KNN) The Reserve Bank of India (RBI) reports limited adoption of the government's Pre-Packaged Insolvency Resolution Process (PPIRP) for managing financial stress among Micro, Small, and Medium Enterprises (MSMEs).

Launched in 2021, it deals with default amounts ranging from Rs 10 lakh to Rs 1 crore.

RBI Governor Shaktikanta Das, addressing a conference on the future roadmap for resolving stressed assets and IBC (Insolvency and Bankruptcy Code), noted a relatively muted response to PPIRP, on Thursday.

“One reason could be the hesitancy on the part of the financial creditors (FCs) in approving the proposals under this mechanism, wherein the haircut is perceived as voluntary,” said Das. 

Despite this, he emphasised that PPIRP could encourage promoters to proactively engage with creditors, potentially preventing defaults and facilitating quicker, smoother resolutions to avoid adversarial litigations.

“Overall, this could be a win-win situation for both creditors and debtors. Once this perception is established, there could be a greater acceptance of this mechanism for larger corporate debtors as well, as, and when the statutory enablers are in place,” the governor explained.

Governor Das underscored the potential game-changing role of PPIRP in the out-of-court resolution framework, especially considering the coordination challenges with a creditor universe, including mutual funds, insurance companies, and bond/debenture holders, outside the scope of the Prudential Framework for Resolution of Stressed Assets.

He acknowledged the limitations of the out-of-court resolution framework and expressed the RBI's interest in aligning it effectively with the IBC.

Das considered PPIRP a potential game-changer in this regard.

According to data shared by Minister of State, MSME Ministry, Bhanu Pratap Singh Verma, only six cases were admitted under PPIRP, with four ongoing, one resolved, and one withdrawn.

The pre-pack process allows eligible MSMEs, experiencing default and not undergoing insolvency under Part II IBC, to initiate proceedings.

However, debtors can file for insolvency resolution after creditors approve the appointment of a resolution professional.

(KNN Bureau)