Banking stocks were trading higher in morning trade on Thursday after the Rajya Sabha approved the Insolvency and Bankruptcy Code Bill on Wednesday. The bill will address bank debts and improve ease of doing business in India.
ICICI Bank was trading 2.79 per cent higher at Rs 230.20 on NSE (at 10.09 am). It was followed by Axis Bank (up 1.48 per cent), Kotak Mahindra Bank (up 1.45 per cent), YES Bank (up 1.06 per cent) and State Bank of India (up 1.03 per cent). The Nifty Bank index was up 1.03 per cent at 16,926.35.
According to Nomura, the Bill creates a new institutional structure to deal with bankruptcy and sets a time-limit of 180 days within which the resolution has to be completed. A consolidated legal framework for resolving bankruptcy will play a key role in improving the ease of doing business in India. Additionally, this will be a big positive for the banking sector.
A resolution plan would involve restructuring debt or liquidating the debtor’s assets to repay loans. The Bill also provides for priority of pay-out in case of liquidation.
Insolvency is a situation where an individual or a company is unable to repay their outstanding debt.
The government expects that the new framework is expected to help in improving India’s position in the World Bank’s ease of doing business ranking.
Nomura in a report said, “India currently ranks 136 in the World Bank’s resolving insolvency ranking; It takes 4.3 years to resolve insolvency and the recovery rate (at 25.7 cents to a dollar) is very low. The Code will play a key role in improving the ease of doing business in India.”
The Lok Sabha had already passed the bill on March 5.