Ashwini Kumar Tewari, the managing director of SBI, advocated on Friday that infrastructure investment trusts (InvITs) should no longer enjoy immunity from insolvency proceedings and should instead be brought under the Insolvency and Bankruptcy Code. He emphasised the importance for lenders to have assurances of recovering their dues from InvITs in case of defaults.
Tewari also mentioned ongoing discussions with the Reserve Bank and the government regarding this matter.
"We need to bring these trusts, which are bankruptcy remote, within the purview of the IBC because that will go a long way in giving us the assurance that this is like any other asset," Tewari said, addressing an NBFC event organised by industry lobby Assocham here.
He explained that currently, the primary obligation of an InvIT or its associated special purpose vehicle lies with the trust holders, highlighting existing "gaps" that require addressing.
"This space needs clarification; this space needs assurance to the lenders that in case there is a (legal) testing of default etc, it will be the same as any other lending that they do within this space (infrastructure)," he said.
Tewari noted that banks currently do not have the authority to change management at entities, a crucial aspect permitted under the provisions of the Insolvency and Bankruptcy Code (IBC), which has been utilised previously.
He also emphasised that SBI has a positive outlook on the InvITs sector. TItmitigates long-term risks for banks post-project completion and offers consistent cash flow to pension funds and other investors.
The IBC was enacted in December 2019, whereas InvITs saw their inaugural listing in 2017.
Meanwhile, Tewari also raised concerns about the necessity for a non-banking financial company (NBFC) to maintain an extensive roster of lenders, advocating for consortium arrangements in such cases instead.
"'We feel that if there are so many banks involved, each with a smaller share and yet the overall credit size is large, the only conclusion which can be drawn is the follow-up, and the control mechanism on the portfolio then is so much lesser. And that is something we are not very comfortable with," he said.
SBI has brought the issue to the attention of the RBI, highlighting that banks prefer not to restrict the number of relationships an NBFC can maintain. Currently, each bank receives a separate list of debtors and must conduct sample checks on each account, which Tewari described as inefficient, particularly for large exposures.
In contrast, he noted that manufacturing or services companies of similar size typically maintain fewer banking relationships. Tewari stressed that resolving this issue is crucial for the sector's sustainability. He also praised the heightened awareness and internal audit capabilities among NBFCs in southern India, which help mitigate risks.
He attributed the increased regulatory scrutiny of NBFCs to the sector's stress following the IL&FS crisis in 2018-19 and its subsequent growth.