Monsoon session: Pre-pack insolvency, bank privatisation top agenda

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July 14, 2021 4:45 AM

The government will also seek Parliament's nod for the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill to give time-bound access to depositors for their insured amount of Rs 5 lakh if banks go bust.

The stipulation in the Banking Regulation Act, 1949, that no shareholder of a banking company – PSB or private sector bank – can exercise voting rights more than 26%, is also being reviewed, sources added.The stipulation in the Banking Regulation Act, 1949, that no shareholder of a banking company – PSB or private sector bank – can exercise voting rights more than 26%, is also being reviewed, sources added.

Key amendments to the Insolvency and Bankruptcy Code (IBC) to ratify the so-called ‘pre-pack’ resolution scheme for MSMEs and changes in banking laws to aid privatisation figure on the economic agenda for the monsoon session of Parliament, scheduled between July 19 and August 13.

The government will also seek Parliament’s nod for the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill to give time-bound access to depositors for their insured amount of Rs 5 lakh if banks go bust. It will also introduce a Bill to de-licence the power distribution business and allow any entity to run distribution companies (discoms) anywhere in the country to foster competition.

The government amended the IBC through an Ordinance in early April to bring in the pre-pack resolution scheme for MSMEs, under which only the debtor will get to trigger its own bankruptcy process. The new scheme could potentially yield much faster resolution than the extant corporate insolvency resolution process (CIRP) and cut costs, analysts reckon. Also, promoters will continue to run the MSMEs, unlike in the CIRP where the resolution professional gets to run the affairs with guidance from financial creditors. It will also reduce litigation, often triggered by defaulting promoters to retain control of their firms, and help thousands of MSMEs struggling to cope with the havoc wrought by the Covid-19 pandemic.

Even though relevant Bills are not listed in the initial list of 17 Bills for consideration and passing in the session, the government will either amend or repeal the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 (Nationalisation Acts). The voting rights cap of 10% for a non-government shareholder irrespective of her shareholding is a hindrance for privatisation of public sector banks, sources said.

In the Budget FY22 speech, finance minister Nirmala Sitharaman announced the government’s plan to privatise two public sector banks and one general insurance company in the current financial year. It has been reported that Central Bank of India and Indian Overseas Bank (IOB) will be privatised this year, in sync with Niti Aayog’s suggestions, but there is no official word yet.

The stipulation in the Banking Regulation Act, 1949, that no shareholder of a banking company – PSB or private sector bank – can exercise voting rights more than 26%, is also being reviewed, sources added.

Likely changes to nationalisation Acts and the Banking Regulation Act are seen as part of larger process to privatise more PSBs in due course after the government categorised banking as a strategic sector. According to the policy, the government will have to bring down number of PSBs in due course to a maximum 4 from 12 now.

Under the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021, the government is considering to set a 90-day time-frame for customers to be able to have access to their deposits up to an insured amount of Rs 5 lakh if their banks go bust or withdrawals are restricted. In the Budget for FY21, the government had announced raising the limit of bank deposits insured under the DICGC Act to Rs 5 lakh from Rs 1 lakh. The move will give some relief to people in the aftermath of grave fraud at Punjab and Maharashtra Co-operative Bank while customers of Yes Bank also faced difficulties in withdrawing their money.

Under the Bill concerning power distribution, incumbent state-run discoms will have to “provide non-discriminatory access to their distribution system to all discoms registered within the same area of supply”, in return for wheeling charges to be determined by state power regulators.

The Coal Bearing Areas (Acquisition and Development) Amendment Bill, 2021, will allow land acquisition for commercial coal mining by private sector players.

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