The move to bar wilful defaulters from regaining control over their companies will bring credit discipline and prevent promoters from gaming the system, senior bankers said.
“If people who caused the problems are prevented from rebidding, it protects the banks and ensures that there is more fairness in the process,’’ said Shyam Srinivasan, CEO at Federal Bank. “There is already an elaborate procedure to identify wilful defaulters and this amendment now is a continuation to ensure that when you do a wrong thing you will not be able to repeat it.”
After an intense debate about whether the Insolvency and Bankruptcy Code prevents or encourages those who defrauded the banking industry, the government on Wednesday proposed an ordinance that would bar `wilful defaulters’ from bidding for assets in the bankruptcy courts. The Reserve Bank of India defines a wilful defaulter as one who had the ability to pay up, but did not, and other factors including diversion of funds.
According to finance ministry data, total outstanding loans by wilful defaulters stands at Rs. 92,376 crore at the end of financial year 2016-17, up 20% over previous year.
There are 8915 cases of wilful defaulter listed by PSU banks as on March 2017. Of this, banks have filed FIR or First Information Report in 1,914 cases with outstanding loans of Rs. 32,484 crore.
“This is a very positive move. This will bring credit discipline among borrowers,” said R Marathe, CEO of Bank of MaharashtraBSE 0.56 %.
Prime Minister Narendra Modi government’s clean-up of the system is gathering momentum as it empowered the RBI earlier this year to direct banks to take defaulters to the National Company Law Tribunal which would work on resolution in a time-bound manner.
“If this amendment would not have come in place, then it would have diluted Governments efforts to resolve the issue of bad loans,’’ said Kalpesh Mehta, partner Deloitte India, “There is now a real chance that promoters can lose control and are no longer in a position to take creditors for a ride.”
The amendment comes at a time when as many as 400 companies are being referred to Insolvency and Bankruptcy Code for the resolution of the stressed assets. This also includes the 11 large cases that are referred to the bankruptcy court following directions from the Reserve Bank of India.
