The Hindu Editorial Analysis | 18th September ’21

Table of Contents

IBC — five years young | Business Line

Insolvency and Bankruptcy Code (IBC) came into force five years
Landmark reform
Speedily transfer capital locked in unproductive assets to productive uses
SARFAESI, Lok Adalats and Debt Recovery Tribunals
Creditor-in-control model vs Debtor-in-possession system
Promoter loses control over the management of the company as the debt is auctioned to interested parties other than the promoter.
Ejecting the promoter was expected to rule out lengthy litigation.
Initial burst – ‘dirty dozen’ accounts were resolved with some big promoter names in steel and cement losing control of their companies and banks recovering impressive sums.
Now, it appears that defaulters have figured out how to game the IBC.
Parliamentary Standing Committee report on insolvency observes that “low recovery rates with haircuts as much as 95 per cent and the delay in resolution process with more than 71 per cent cases pending for more than 180 days clearly point towards a deviation from the original objectives of the Code”.
Of the nearly 4,500 cases admitted by the National Company Law Tribunal over time,
- only 8 per cent have seen resolution
- while 30 per cent have gone into liquidation
- 40 per cent are pending resolution
The NCLT has received over 32,000 insolvency applications
- a decision (to admit or not) is pending in over 13,000
Cross-border insolvency, group insolvency
RCom experience shows, what happens to assets (such as spectrum) leased out to companies when they hit the insolvency court?
The IBC has certainly proved to be a superior process compared to the earlier systems but clearly, it will have to evolve with experience in order to be effective.

A Step Forward for Bad Loan Resolution | ET

The National Asset Reconstruction Co. Ltd (NARCL) is being established as a bad bank to take over non-performing assets, allowing banks to focus on their core business of lending.
State-run financial institutions led by Canara Bank will hold a 51% stake in NARCL.
NARCL will acquire stressed assets of about ₹2 lakh crore in phases starting with ₹90,000 crore in bad debt.

It will pay up to 15% of the agreed value for the nonperforming assets (NPAs) in cash to public sector banks while the remaining 85% will be offered as securities receipts (SRs).
These will be redeemed from the amount realised after resolution of the bad debt.
Govt will meet the shortfall between the value of SRs and the amount realised from resolving the underlying NPA.
National Asset Reconstruction Co Ltd (NARCL) and India Debt Resolution Co Ltd (IDRCL)
The NARCL would engage IDRCL to manage the assets, and dispose of them, ideally within five years.
The real test is the efficacy of the resolution process.
That bad loans would be transferred to patient capital that can resolve them over five years is a big plus. This avoids the bad choice between a fire sale and liquidation that resolution has consisted of till now.
IDRCL can employ professional management teams to run companies, turn them around and sell them off.
The remuneration structure of these teams is key.
Ideally, they should be given equity options that vest for at least five years, on top of reasonable fees, so that they stand to make a legitimate killing if they do a good job, as opposed to the underhand schemes that some resolution professionals are said to deploy.
Where does this leave existing asset reconstruction companies (ARCs), all 28 of them?
NARCL is supposed to tackle ₹2 lakh crore worth of NPAs.
That leaves ₹6 lakh crore worth of NPAs. ARCs need a market for subprime debt, and the space to turn companies around.

Good News on the Bad Front | ET

The baggage of legacy non-performing assets (NPAs) ends up consuming management bandwidth and hindering productive credit delivery.
This often leads to value erosion during the resolution process.
Accordingly, although existing ARCs and available resolution mechanisms have proved to be useful, additional options are needed, considering the large stock of legacy NPAs.
The government’s 4R strategy of recognition, resolution, recapitalisation and reform has led to a turnaround in the performance of public sector banks (PSBs).
IDRCL – majority-owned by the private sector, and will be instrumental in formulating and implementing the resolution strategy for all the assets held by the various trusts under NARCL.
The assets acquired shall be resolved using existing resolution tools, including the RBI framework, IBC, enforcement, along with sale to alternate investment funds (AIFs) and strategic investors.

NEWS

PM Modi addresses plenary session of SCO meeting at Dushanbe; asks member states to fight against increasing radicalization
SCO member states stresses on the need of an inclusive government in Afghanistan
Amit Shah says, team at Central govt is moving ahead with comprehensive vision which includes development for all
GST Council turns down proposal to bring petrol & diesel under ambit of GST: FM Nirmala Sitharaman
Govt is taking necessary steps to achieve nutrition security along with food security: Agriculture Minister

Centre releases Rs 2,427 crore to 11 states for urban local bodies
Dharmendra Pradhan presents Kaushalacharya Awards 2021 to 41 skill trainers
Prasar Bharati CEO Shashi Shekhar Vempati launches e-Office Hindi portal
Home Minister Amit Shah to launch Ujjwala 2.0 scheme today
New Passenger Terminal Building inaugurated at Petrapole between India and Bangladesh
G-33 Virtual Informal Ministerial Meeting held to discuss Agricultural Priority Issues of G33
China and India should continue to adhere to the strategic consensus that they do not pose a threat to each other: Chinese FM
Bangladesh-India relations are a role model for any neighbouring country: State Shipping Minister Khalid Mahmud Chowdhury
Bangladesh PM Hasina greets PM Modi on his 71st birthday

Q.) The Government has restricted the funding for a group of 10 American, Australian and European NGOs dealing with environmental, climate change and child labour issues. They add to the more than 80 international voluntary agencies now on the PRC list of the fovernment. Whatdoes PRC stand for?