The Ministry of Corporate Affairs is set to notify new rules for the treatment of third party assets of a stressed financial company under the Insolvency and Bankruptcy Code, multiple sources aware of the development told CNBC-TV18.

The MCA, in consultation with the Reserve Bank of India, is expected to release the relevant guidelines under Section 227 of the IBC for financial service providers as early as this week, said three people aware of the talks.

These rules will help secure the rights of banks under securitisation agreements for cases like DHFL, such that the third party assets of the stressed debtor are kept out of the moratorium applicable under IBC, explained one of the people quoted above.

Currently, under Section 227 of the IBC, the moratorium will not apply to any third-party assets or properties in custody or possession of the financial service provider, including any funds, securities and other assets required to be held in trust for the benefit of third parties.

However, what has caused confusion in case of DHFL is the sub-clause, which says that the RBI-appointed administrator "shall take control and custody of third-party assets or properties in custody or possession of the financial service provider, including any funds, securities and other assets required to be held in trust for the benefit of third parties only for the purpose of dealing with them in the manner, as may be notified by the Central Government under section 227".

One of the people quoted above said that this sub-clause has been interpreted by the administrator in DHFL to mean that unless the central government notifies these new norms, banks with securitisation agreements cannot be repaid.

This has led to a situation where State Bank of India, Bank of Baroda, Union Bank of India and other lenders, which had bought pooled portfolios from DHFL earlier, have not been repaid since the mortgage lender was taken to the National Company Law Tribunal under Section 227 of the IBC.

A senior industry executive told CNBC-TV18 that affected banks had approached RBI to rush new rules so that their repayment can start.

While this will immediately bring relief to banks with securitisation agreements in the case of DHFL, it will also ensure rights of banks are protected under such agreements for all such future cases to come.

First Published:Jan 14, 2020 9:27 AM IST