New Delhi, February 12, 2018

Companies won’t get ‘automatic rescue packages’

Twesh Mishra The implementation of the Insolvency and Bankruptcy Code (IBC) has started cleaning up the loan disbursal process and even the the nature of doing business, according to Principal Economic Advisor, Ministry of Finance, Sanjeev Sanyal.

NPA problem

“In 2017, the government decided to test the completely new IBC to target the top 50 or 60 companies that are the main cause of the Non Performing Asset (NPA) problem and account for almost two-thirds of the bad loans, and to try to force them into some sort of a resolution,” he said at the BusinessLine and SASTRA University ‘Post Budget Talk’, powered by FICCI.

Instead of upfront recapitalisation of banks, the government used this measure to squeeze them by introducing BASEL III norms, Sanyal noted.

Huge losses

“And as a result of these cleansing measures, State Bank of India has announced huge losses after many years,” he said, adding that it was a very painful thing to impose on the economy, which was already suffering.

Sanyal said the culture of not paying back loans and getting away without any punishment had to be broken.

“This is a culture where all kinds of investments could be made by promoters with the thinking that heads I win, but tails you, that is the taxpayer, lose.”

Change in culture

He said: “The tribunals in charge of the insolvency process have done quite well, and the courts have not got in the way.

“The National Company Law Tribunal (NCLT) has more or less processed things and even before reaching the deadline for turning around these companies, you have clearly seen a change in culture at the banks.”

Sanyal noted that there has been a change in the business culture as well: there is now an understanding that when things go wrong, companies will not get an automatic rescue package from the taxpayer funds.

[The Hindu Business Line]