Business Today

Fixing the Bankruptcy Code

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 Rs 8 lakh crore plus stressed loans into three different buckets

You're reading a preview, sign up to read more.

More from Business Today

Business Today2 min read
Oyo's Vulnerabilities
Entrepreneurship and entrepreneurs must be celebrated unquestionably. Their vibrancy keeps the lifelines of economies alive. Their highs and lows must be carefully choreographed for future generations to learn. Equally, their missteps must be minutel
Business Today15 min read
Tata Group's Debt Threat
Tata Power, set up in 1915, held its 100th annual general meeting on June 18, 2019. While it should have been an occasion to celebrate, with net debt of Rs 47,552 crore in FY19 and a net debt to EBITDA (earnings before interest, taxation, depreciatio
Business Today8 min read
In A State Of Bother
In the recent Delhi elections, in which the incumbent Aam Aadmi Party (AAP) scored a resounding victory, the issue of politicians doling out freebies (a charge levelled at AAP for providing subsidised power and water, among other things) to win votes