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Contents
Source – Business Standard
Relevance – Resolution process under Insolvency and Bankruptcy Code is suffering from many problems. Streamlining this process if very important for Indian Economy.
Synopsis: Public Sector Banks should be the focus area of the reforms in resolution process. otherwise hard-earned money of taxpayers will be wasted without anything in return.
Introduction
Many big and small industrialists have criticised cases of bad loan write-offs by public sector banks (PSBs). There are allegations that new bankruptcy process is being misused by many promoters. They are stashing the money away and getting concession under bankruptcy process from banks. Thus, National Company Law Tribunal (NCLT) under IBC requires reforms.
However, mains issue is not promoters or NCLT, it is Public Sector Banks, that require reforms.
What are the issues linked to PSBs in bankruptcy process?
According to the data from the Insolvency and Bankruptcy Board of India (IBBI), in over 363 major NCLT resolutions since 2017, banks have taken an average loss of 80 per cent.
Whereas only only 8 per cent cases have been resolved and 30% cases resulted into liquidation under bankruptcy process. It means banks were not able to recover money after giving concessions.
According to few sources, the size of the bad loan was almost Rs. 20 trillion. Almost all of it was with PSBs. However, bad loan resolution is still ineffective, which is evident from the poor
financial results and stock prices of most of the PSBs.
This massive accumulation of bad loans was made possible by deep corruption and the
nexus between bankers, businessmen, and politicians in PSBs.
Indian promoters don’t want to give up control over their assets, even after a very bad mismanagement of the business. Hence, in one case after another, promoters were at the forefront of acquiring control over the same assets through the new bankruptcy mechanism.
Reforms introduced by government
Willful defaulters have been barred from bidding. Section 29A was amended to stop willful defaulters from regaining control of their company by forcing creditors to take massive haircuts.
Section 12A was added by a 2018 amendment, which allows the parties to close an insolvency case with the approval of 90 per cent of the committee of creditors (CoC).
Terms to Know
