Monday, May 09, 2016

Don't expect bankruptcy code to change things overnight

The Bankruptcy Code, passed by the Lok Sabha and pending in the Rajya Sabha, is a considerable improvement on existing bankruptcy procedures:
  • It brings disparate insolvency procedures under a uniform institutional structure 
  • It sets a 180 day time limit for resolution
  • It keeps insolvency matters out of the purview of civil courts
  • It has provisions for Insolvency Professionals who will be part of the insolvency resolution and will be incentivised through fees linked to recovery
 There are three issues that the Code cannot and does not address:
  • Legacy NPAs at banks- so it's not going to help address our immediate problems
  • Bankers being unwilling to take a loss in restructuring cases, given the fear psychosis in banking. Given this, it's not clear how they can stick to the 180-day deadline
  • Clogging up of matters in the adjudicating authorities and appellate tribunals to be created- the necessary infrastructure will take long to create and will not be equal to the sheer volume of cases, given our past record. Governance of regulatory and appellate authorities badly needs improvement- and not just in respect of bankruptcy.


sandesh said...

I have been following your commentary on the Indian economy from a long time. And it is impeccable as always.
I wanted to know your comments on the digital media's trend to sensationalize every other thing. The latest being the NPA, Mallya & using taxpayers money to give way for the 'wrong doings' of select few through re-capitalisation. I think this media generated euphoria is impacting the rational decision making of the PSB & it is antithesis to the risk-taking behaviour we are trying to inculcate in our upcoming generation of entrepreneurs & administrators. On one hand we want our administrators to be technocrats but on other hand we want them to be bound by the 'populist' sentiments.

T T Ram Mohan said...

Sandesh, You are right, media sensationalism is coming in the way of rational decision making at PSBs. You may have noticed I have posts on this subject right below the most recent one.