The RBI has recently issued a notification requiring regulated financial creditors to adhere to certain mandatory requirements of the Insolvency & Bankruptcy Code regarding submission of financial information and information relating to assets, on which any security interest has been created, to information utilities.

Background

The Insolvency and Bankruptcy Code, 2016 (IBC) envisages the establishment of information utilities (IUs), for the collection, collation and dissemination of financial information of corporate debtors. Sub-section (2) of Section 215 of the IBC requires financial creditors to submit all financial information and information relating to the assets of any corporate debtor, on which they have created a security interest, to an IU. The form and manner in which the submission is to be carried out is specified under the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017 (IU Regulations).

Pursuant to this requirement, the Reserve Bank of India (RBI) has issued a notification dated 19 December 2017 (Notification) directing regulated financial creditors to adhere to the provisions of the IBC and the IU Regulations regarding submission of financial information to IUs. The Notification applies to all scheduled commercial banks, small finance banks, local area banks, co-operative banks, non-banking financial institutions, registered asset reconstruction companies and all-India financial institutions classified as financial creditors under the IBC. Under the Notification, the RBI also directs all such entities to immediately put in place appropriate systems and procedures to ensure compliance.

Nature of financial information to be submitted

Sub-section (2) of Section 13 of the IBC defines 'financial information' to mean any one or more of the following:

  1. records of the debt of the person;
  2. records of liabilities when the person is solvent;
  3. records of assets of person over which security interest has been created;
  4. records, if any, of instances of default by the person against any debt;
  5. records of the balance sheet and cash-flow statements of the person; and
  6. such other information as may be specified.

Such financial information is required to be submitted to the IU in accordance with the requirements of Regulation 20 of the IU Regulations and in manner set out in Form C therein. As per the IU Regulations and the website of the National E-Governance Services Limited (the first IU to be registered with the Insolvency and Bankruptcy Board of India), Form C may be submitted to an IU by any party connected to a debt, being the creditor, debtor, co-applicant, co-borrower or guarantor.

Modification or correction of financial information submitted

The IBC allows for the modification or correction of financial information submitted to an IU. An application explaining the reasons for updating, modifying, or rectifying errors (if any) in the financial information must be submitted to the IU, in the manner and within such time as specified in the IU Regulations.

Key takeaways for financial creditors

To ensure compliance with the Notification and that their interests are safeguarded, banks and financial institutions should take the following actions:

  1. Set-up internal policies to ensure submission of financial information upon the grant of any loans/investment in debentures etc. Such internal policies should provide for necessary timelines and an internal operational process for monitoring compliance; and
  2. Modify standard financing documents to include obligations on the borrower to:

    1. ensure submission of a duly filled Form C to the relevant IU within a specified period (conditions precedent or conditions subsequent to be included, as the case may be);
    2. ensure that the creditor is provided with evidence of submission of Form C to the IU such as acknowledgement from the IU / evidence of a unique identification number allotted by the IU for the debt etc.); and
    3. comply with all disclosure requirements provided under the IBC and the IU Regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.