This may call for introducing changes in the Insolvency and Bankruptcy Code (IBC) to incorporate the concept of seniority of lenders which the code in its present form does not adequately recognise, two senior industry sources familiar with the development told ET. The finance ministry has referred the matter to the law ministry, said one of them.
India’s largest lender SBI and its arm SBI Capital Markets, which is playing a key role in setting up the fund, have started reaching out to other banks and financial institutions to participate in the AIF — a regulatory parlance for privately pooled vehicles such as venture capital, private equity, and real estate funds.
According to regulation, a bank can invest up to 10% of the corpus of an AIF.
Clarity Needed Post Essar Verdict
Thus, SBI can invest a maximum Rs 2,500 crore in the fund — requiring other institutions to join the proposed Rs 25,000-crore fund in which the government will contribute Rs 10,000 crore. Giving the AIF a senior status among lenders could make it easier for other banks to invest in it.
“The Essar ruling makes it clear that the commercial wisdom of committee of creditors (CoC) will prevail and the same cannot be substituted by…