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India’s high growth & high defaults rates rather unusual scenario for developing countries’

Staff Reporter

Mumbai: Praising the Indian Bankruptcy Code (IBC), Edward I Altman, best known for development of the Z-score to predict bankruptcy, said it is rather unusual to have high growth at the same time high defaults for developing countries.

While speaking at an Assocham function, Altman, Professor of Finance, Emeritus, at New York University’s Stern School of Business, said, “Usually when there is high growth, there is relevantly low defaults. But something is really different in India today compared to most countries in the world that is growing very fast.”

He stressed the need to understand this unusual scenario and to see if this growth is “illusionary”. This understanding needs to be gathered, Altman warned. “We found a significant inverse relationship between the degree of bankruptcies in the system and the recovery rate. You are experiencing an upsurge in NPL (Non-Performing Loan) and bankruptcies. This is ironic at the same time when your growth rate is the highest in the world.”

Commenting on IBC, he termed it fair, revolutionary bankruptcy provision. He reiterated bankruptcy code is critical for the eventual health of the country. He explained that there is nothing wrong with bankruptcy and any vibrant economy will have bankruptcy. “There is nothing to be ashamed of. However, you have to be ashamed if you don’t learn from it.”

Altman, who spent over 50 years studying bankruptcy, stated that he doesn’t like economies that prohibit bankruptcies as it is a big mistake in the long run.