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Banks should use IBC only if other mechanisms fail: Govt

Union Finance Minister Nirmala Sitharaman along with Minister of State Anurag Thakur. (PTI Photo/Shahbaz Khan/File)

Union Minister of State for Finance Anurag Thakur on Wednesday asked banks not to use the Insolvency and Bankruptcy Code (IBC) for every stressed asset but refer such matters to the National Company Law Tribunal (NCLT) only when other resolution mechanisms fail.

There should be an attempt to resolve stressed assets outside the NCLT process, as this would help banks and the business community, Thakur said. I would therefore request bankers to try to resolve stressed assets in the right earnest and refer cases to NCLT only if satisfied resolution outside the NCLT is not available. We should not use NCLT for every case. This is going to help the business community, banks as well, he said at the 72nd annual general meeting of Indian Banks Association (IBA).

He assured bankers to take decision to lend to the industry without any fear of witch-hunting in future by any investigative agencies. I want to assure you (bankers) that the decisions taken by you in course of business in good faith with a sound business rationale will not face any witch-hunt, Thakur said.

Bankers should timely report frauds without any fear of repercussions, he said. Thakur said despite a 110 basis points repo rate reduction by the Reserve Bank of India over the last few months, banks have not passed on the full benefit to the consumers. Only a fraction of the rate cuts benefits were passed-on by the banks to borrowers. I appeal to banks to further pass on the benefits of the rate cuts to companies which will lead to an increase in the consumption cycle, thereby, leading to a revival in their investments, he said.


Other forms of resolution may help faster loan recovery

The government has appealed to banks to first explore NPA resolution outside the framework of Insolvency and Bankruptcy Court, and take cases to National Company Law Tribunal only if other forms of resolution fail. In the backdrop of resolution cases getting delayed in various benches of NCLT, other forms of resolution could lead to faster recovery of loans with the option of invoking the IBC always remaining with the banks. The banks are increasingly selling NPAs to Asset Reconstruction Companies in recent months to boost recovery, as an alternate to the IBC-led resolution process.

In the last five years, the government has recapitalised public sector banks (PSBs) by over Rs 2 trillion, and recently also announced an immediate capital infusion of Rs 70,000 crore in these lenders. Thakur said the banks are being encouraged to lend more to NBFCs, which will improve the availability of credit in the market and reduce the liquidity crunch.

I am positive that the steps taken by the RBI mandating the banks to link their fresh retail loans issued from October 1 to an external benchmark will lead to cheaper funds for the borrowers, he said, adding that it will also reduce the cost of working capital loans for the industry. He also requested IBA to look into the transfer and human resource policies at banks, especially for women employees. If you are going away thousands of kilometers from your home, and if you are not mentally there then ultimately it is going to impact customers, Thakur said.

The government had earlier this year approved a clutch of amendments to the Insolvency and Bankruptcy Code with an intent to make the resolution/ liquidation process faster and also remove ambiguities, if any, that might have resulted in various NCLT/NCLAT benches giving rulings that were pergent and even went against the spirit of the legislation. Recovery through the IBC was Rs 70,000 crore in fiscal 2019 or twice the Rs 35,500 crore recovered through other resolution mechanisms such as the Debt Recovery Tribunal, Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, and Lok Adalat in fiscal 2018, Crisil said in a report.