IBC, pre-packed insolvency…govt lists measures to tackle problem of NPAs
The Minister of State for finance Bhagwat Karad has informed parliament that fresh slippages to NPAs as percentage of opening gross loans and advances in public sector banks has come down to 2.1% in the financial year 2021-22, from 7.4% in the financial year 2017-18. He has attributed this largely to Insolvency and Bankruptcy Code, which he says has changed the credit culture in the country.
Responding to a question by member of parliament Parimal Nathwani, the MoS Finance said that Change in credit culture has been effected, with the Insolvency and Bankruptcy Code (IBC) fundamentally changing the creditor-borrower relationship, taking away control of the defaulting company from promoters/owners, and debarring wilful defaulters from the resolution process.
“To make the process more stringent, personal guarantor to corporate debtor has also been brought under the ambit of IBC,” he informed the parliament.
Giving an update on the pre-packaged insolvency resolution process (PPIRP), the minister said that the pre-packaged insolvency resolution process (PPIRP) was operationalised under IBC to provide an efficient alternative insolvency resolution process for corporate persons classified as micro, small and medium enterprises (MSME), ensuring quicker, cost-effective and value maximising outcomes for all the stakeholders, in a manner which is least disruptive to the continuity of their businesses and also preserving employment.
Apart from IBC, the minister also gave the details of other measures taken by the government and regulators to mitigate the problem of NPAs.
He informed the house of the Prudential Framework for Resolution of Stressed Assets, which was unveiled by RBI in 2019 to provide a framework for early recognition, reporting and time bound resolution of stressed assets, with a build-in incentive to lenders for early adoption of a resolution plan.
The other measures he talked about in effectively dealing with NPAs are listed below:
- The Central Repository of Information on Large Credits (CRILC) collects, stores and disseminates credit data to lenders, and banks are required to submit report on weekly basis to CRILC, in case of any default by borrowing entities with exposure of Rs. 5 crore and above.
- Under the PSB Reforms Agenda, comprehensive and automated Early Warning Systems (EWS) were instituted in PSBs, with ~80 EWS triggers and use of third-party data for time-bound remedial actions in the borrowing accounts.
- PSBs have also created Stressed Asset Management Verticals for stringent recovery, segregated pre- and post-sanction follow-up roles for clean and effective monitoring, and engaging specialised monitoring agencies for monitoring of large-value accounts.
- The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 has been amended to make it more effective to deal with NPAs.
- Wilful defaulters are not sanctioned any additional facilities by banks or financial institutions, and their unit is debarred from floating new ventures for five years.
- Wilful defaulters and companies with wilful defaulters as promoters/directors have been debarred from accessing capital markets to raise funds.
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