The Finance Minister Arun Jaitley has said that the key objective of the non-performing asset (NPA) resolution is not liquidation of assets but to save businesses. He also said that the new insolvency law has significantly reversed defaulting debtor-creditor relationship and added that the old regime of lenders chasing borrowers and being unable to recover anything is over. Describing the rationale for the new insolvency and bankruptcy code (IBC), he said, this was necessitated by the failure of debt recovery tribunals to effectively perform their duty after the initial success.
Jaitley said that the Sarfaesi (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, when enacted, had succeeded in getting down NPAs drastically in the initial two-three years. But then the debt recovery tribunals began to be less effective as envisaged which led to the new law. He also said ‘The old regime by which the creditor would get tired chasing the debtor and end up recovering nothing, is now over. If a debtor has to survive, he will have to service his debt, or he will have to make way for somebody else. I think this is the only correct way by which businesses would now be done and this message has to go loud and clear.’
Calling for speedy and time-bound resolution of the bad loans issue which has become a major regulatory overhang, the FM expressed the hope that the mandated timelines will be adhered to so that implementation is effective. The gross NPAs have crossed 9.6% as of March 2017, while the stressed loans ratio is over 12%. Following this, the RBI has named 12 of the largest defaulters in June, which together owe more than Rs 2.5 trillion to banks. Almost all of them are under National Company Law Tribunal, and may face liquidation if the promoters fail to come up with a sustainable resolution and capital infusion.
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