India's NPA-ridden banks find a magic wand in IBC

India’s NPA-ridden banks find a magic wand in IBC

- Tushar K Mahanti

If the present government’s biggest structural reform – implementation of Goods and Services Tax – has not yet delivered to its potential; the second big reform in the form of Insolvency and Bankruptcy Code (IBC) has shown visible effect on the financial life of the economy. It has brought significant behavioural changes and has re-written the terms of commitment between lenders and debtors that was largely in favour of big borrowers for years.

After the successful sale of Bhushan Steel, the Insolvency and Bankruptcy Code seems to have appeared as a magic wand to India’s NPA-ridden commercial banks. Bhushan Steel owes close to ₹48,000 crore to banks and was referred to the NCLT by Punjab National Bank last year.

Look at the fact: Tata Steel’s acquisition of Bhushan Steel alone is estimated to reduce banks’ NPAs by ₹35,000 crore. An elated financial services secretary Rajeev Kumar has reportedly, said. “IBC is transforming credit culture in New India. About ₹ 35,000 crore reductions of NPAs of PSBs (Public Sector Banks) in Bhushan Steel case is a major development. Reduction of NPAs in individual PSBs would range from about ₹500 crore to over ₹10,000 crore, he has said.

Encouraged by the successful conclusion of the Bhushan Steel case, the finance ministry expects banks to write back more than ₹1 lakh crore after the resolution of all 12 NPA cases referred to insolvency proceedings by the RBI in its first list. About 40% of Indian banks’ non-performing assets are undergoing resolution under the National Company Law Appellate Tribunal (NCLT), which started in July 2017.