There is a remarkable shift where banks are in favour of resolving the bigger cases outside the Insolvency and Bankruptcy Code process rather than National Company Law Tribunal. Analyse (200 Words)
Refer - The Indian Express
Enrich the answer from other sources, if the question demands.
IAS Parliament 5 years
KEY POINTS
Under Urjit Patel, the RBI took a more forceful approach to resolving bad loans through the IBC process.
Its various lists directing banks to take specific companies through the process were a clear indication of its intent.
Reasons for shift
· Delays in the resolution of cases, and endless litigation have dampened enthusiasm for the process.
· As a time-bound resolution process was one of the most appealing aspects of IBC, such delays create little incentive for stakeholders to opt for this process.
· The recovery rate under IBC currently stands at 41 per cent. But, this also needs to be qualified. The higher recovery rates are driven partly by the resolution of steel companies during a period that coincided with high global steel prices.
· A slowing economy, coupled with an over-leveraged corporate sector, has reduced appetite for assets stuck in the NCLT. Not only have recovery rates been low in the cases resolved, but more than half of the cases closed so far have ended up in liquidation as there have been no buyers.
For better IBC
· The provisioning norms for bad loans should be made more stringent to ensure banks have strong incentives to take companies through this process and not postpone the decision, hoping to restructure the loan outside IBC.
· Relaxing the 330-day deadline will further dampen enthusiasm. The idea of having a time-bound process was to put pressure to ensure speedy resolution.
· Delays in either taking the company to NCLT or in the resolution process destroys enterprise value. This decision must be reviewed.
· The government should establish the supremacy of IBC to ensure that assets are not allowed to be attached once they have been admitted.
· There also needs to be clarity on the role of promoters. While barring all promoters from bidding was a harsh step, there needs to be consistency of approach. Allowing them to participate in liquidation but not in the resolution process would be inconsistent.
Shantanu tiwari 5 years
Please review
IAS Parliament 5 years
Good answer. Keep Writing.
Shivangi 5 years
Please review.
IAS Parliament 5 years
DHARU 5 years
Kindly review!!
IAS Parliament 5 years
Good answer. Keep Writing.
