Global credit rating agency Moody's Investors Services in its latest report has said that the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions Bill, 2016 and the Insolvency and Bankruptcy Code, 2016 (bankruptcy) is a credit positive for the Indian banks, as it aims to expedite the recovery and resolution of bad debts. While the bankruptcy law, the Enforcement of Security Interest and Recovery of Debts Bankruptcy Code, 2016 has to be passed by the Rajya Sabha after it was cleared by the Lok Sabha.
Moody’s said that weakness in current processes for bad debt resolution has been a key structural credit challenge for Indian banks. There are currently about 70,000 cases pending in debts recovery tribunals (DRTs) and these cases have been pending for many years owing to various adjournments and prolonged hearings. Further, the provisions relating to promotion of asset reconstruction companies for banks to off-load their non-performing assets (NPA) and priorities debt due to secured creditors over all other debts and claims including government claims are credit positive features for the Indian banks.
Rating agency further said that the Enforcement of Security Interest and Recovery of Debts Bankruptcy Code, 2016, proposed electronic filing of all proceedings, time limit for filing appeals against decisions of DRTs reduced to 30 days from 45 and debtors to deposit 50 per cent of the amount of debt payable before filing an appeal are positive for Indian banks.
