It has not given bankers the realisations they had hoped for. Now the government has unveiled a new approach even while they are modifying the act.
Two years ago, the landmark Insolvency and Bankruptcy Code (IBC) appeared to have handed a silver bullet to bankers for a quick resolution of the vexed problem of stressed loans. The Act did manage to create a sense of fear among corporate defaulters, but failed to maximise the value of assets for creditors and achieve a time-bound resolution. While it is too short a period to jump to any conclusions, the government changed track a few days ago by giving the green signal to a new five-pronged approach under “Project Sashakt” (or Empowerment). Under this, the government wants to set up one Asset Management Company (AMC) -- a Bad Bank in common parlance, which would take over the stressed assets first, and try and nurse them to health. (Later there could be more AMCs) In one stroke, the government seems to have relegated the IBC, making it a resolution tool of last resort.
The new five-tier resolution structure lists the IBC at fourth place. The first three approaches are outside the IBC and essentially entail dividing the ₹8 lakh crore plus stressed loans into three different buckets – SME, mid-size and large loans. The fifth resolution tool is actually far more ambitious and is about creating a trading platform for bad loans.
Shyam Srinivasan , CEO, Federal Bank, says IBC is the anchor for resolution of bad loans. “Everything else ( AMC, ARC, etc.) is the additional support or enabler for IBC. The bankruptcy code will stabilise in due course,” hopes Srinivasan. “Financial creditors can use the NCLT (National Company Law Tribunal) as a medium but not as the only option,” says Abizer Diwanji, Financial Services Head, EY India. Abizer’s EY provided support to Project Sashakt from structuring, taxation and accounting perspective. The new approach hints that assets with limited turnaround potential will be taken to the IBC.
This story is from the August 26, 2018 edition of Business Today.
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This story is from the August 26, 2018 edition of Business Today.
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