IBC, 2016 can speed up loan recovery & resolution for banks
With the introduction of the Insolvency & Bankruptcy Code, 2016 now the banks can hope to recover more within a time bound period from their bad loans. Currently the whole recovery process take as long as 15 years in certain cases to recover the NPA’s of banks, which substantially erodes the value of the assets.
As per the World Bank report, in India, it takes normally more than four years to wind up a company, which is double the time taken in China and in the US (1.5-1.7 years). In the whole process, banks in India recover only 25 cents to a dollar, equated to 36 cents in China and a substantial 80 cents in the US.
Under the new IBC, 2016 the adjudicating authority would be the National Company Law Tribunal (NCLT) for companies, and the Debt Recovery Tribunal (DRT) for individuals and partnership firms. The code has fixed the time limit of 180 days for the completion of the insolvency process which will surely be a huge positive boost for the banking industry.
According to Gaurav Goel, Advocate, Sr. Managing Partner of India Insolvency Professionals (IIP), earlier there were so many reasons for the delay in the whole bankruptcy process in India and primarily because of the multiple laws & different agencies governing insolvency besides the SARFAESI Act, 2002, the Companies Act, 2013, SICA, the Recovery of Debts due to Banks and Financial Institutions Act, 1993.
Now the secured creditors do not have to wait until a loan is declared NPA to trigger the process of recovery or restructuring. Whenever the stress is observed the banks can take action at the early stages for the resolution or the liquidation by filing the petition before the NCLT. The IBC, 2016 also involves resolution professionals who will work along with a committee of creditors, thereby giving secured creditors a say in the process. It also provides for immediate suspension of the Board of Directors and promoters’ powers and the insolvency professional can take control of the Corporate debtor.
We believe the IBC code, 2016 will instill far greater financial discipline among borrowers and it will also benefit the economy as a whole. It allows room for shutting down a business if things go wrong. So, an entrepreneur is given a chance to move on and banks are also paid off,” says CA Navneet Gupta, Certified Insolvency Professionals.