Stressed assets: Right to keep defaulters out

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New Delhi | Updated: Jan 03, 2018 6:55 AM

RS nod for Bill; exclusion norms too broad, all in domestic financial world kept out, says Opposition.

stressed assets, keep defaulters out, Insolvency and Bankruptcy Code, undermine potential competition, broad exclusion criteria, Arun JaitleyRS nod for Bill; exclusion norms too broad, all in domestic financial world kept out, says Opposition. (Image: PTI)

Countering the Opposition’s view that the Insolvency and Bankruptcy Code (Amendment) Bill approved by the Upper House on Tuesday would undermine potential competition for the stressed assets going under the hammer by stipulating unduly broad exclusion criteria, finance minister Arun Jaitley on Tuesday stressed that the aim was to exclude wilful defaulters from taking over the management of companies after banks had taken losses on loans. Replying to the debate in the Rajya Sabha, Jaitley reiterated that the proposed changes in rules were expected to help streamline the process of selecting buyers for stressed assets. Jaitley also made it clear that the government has not written off any bank loan and the liability of the borrowers for repayment of the bad loans remained. “Qua the borrower, the liability remains. But the banks change the identity of the loan to ensure that income tax relief is sought by the bank. One should clear this misconception from the mind that the government or the banks have waived of Rs 55,000 crore,” he said.

The Lok Sabha had passed the Bill on Friday. An ordinance had already kept out “such persons who have wilfully defaulted, are associated with non-performing assets, or are habitually non-compliant and, therefore, are likely to be a risk to successful resolution of insolvency of a company.” The Bill, which the President may sign into law anytime now, makes it clear that defaulters, including promoters, whose accounts have been classified as non-performing assets for at least a year, can submit a resolution plan only after clearing the overdue amounts with interests and other charges. The Bill allows asset reconstruction companies, banks and alternative investment funds registered with Sebi to bid for insolvent companies, as they will not be covered under definitions of holding or subsidiary companies, associate companies or related persons.

Initiating a debate on the Bill in the Rajya Sabha, former finance minister P Chidambaram said the exclusion clauses in the Bill were so broad that “practically everybody in the financial world is excluded.” He added: “It is quite possible that asset reconstruction companies and alternative investment bodies will turn out to be the bidders. Most of the Indian companies which go through the resolution process will pass from an Indian to a foreign management.” He said he had no objection to foreign companies coming to India but a level-playing field should be created for adequate participation of Indian companies. The exclusion clauses in the Bill include leaving out anybody who has been convicted for two years from the bidding process or one prohibited by SEBI. Jairam Ramesh, also a former Cabinet minister, raised concern about lenders taking “big haircuts” or discounts on claim value of NPAs. “In the first case of insolvency taken under the code, the haircut was 76%, in second case, it was 74% and in the third case, it was 80%. Is this an acceptable situation?,” Ramesh asked.

According to the Bill, defaulting promoters, who had already submitted resolution plans for insolvent companies before an Ordinance in November made them ineligible to do so without clearing dues first, will get up to a month to come clean to be eligible to bid for the stressed firms. The relaxation will, however, be applicable only to defaulters in those cases where the resolution period has not exceeded the stipulated time frame. The IBC allows six months (or nine months, if the adjudicating authority has granted a 90-day extension) to approve a resolution plan. Reiterating the government’s position that large non-performing assets (NPAs) of banks and the concomitant, over-leveraged corporate balance sheets are a legacy it inherited from the UPA regime rather than its own creation, Jaitley said: “the bulk of NPAs of banks have arisen out of loans given before April 1, 2014, due to aggressive lending and without proper risk assessment and even without being backed by securities.”

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