The hurriedly constituted panel by the government under the chairman ship of Mr. Sunil Mehta, Chairman, Punjab National Bank (is it by default or design?) does not necessarily inspire confidence in finding the solution for the vexed problem of NPAs of the public sector banks and is it being done so as to dilute the process of IBC which has been one of the greatest reforms initiated by the present government.
First of all what is the need for constituting a panel when the IBC code, 2016 is doing a good job, though there are initial hiccups. This seems to be a reaction to the circular of the RBI dated 12th February, 2018 wherein RBI scrapped all the restructuring schemes from the erstwhile CDR, SDR, S4A etc. and it looks the government wants to dilute the dictate of RBI and go down the same road which was existing and giving a long rope to the borrower and allowing the lender for ever greening the asset and avoiding the bankruptcy proceedings for banks and for the defaulting promoters.
The idea does not seem to be great and does not give any confidence as the setting up of a Asset Management Company(AMC) for dealing with NPAs of over Rs.500 crores and more and a bank led approach recommended for loans between Rs.50 to Rs. 500 crores where the resolution process would be worked out by the lead bank within 6 months. For loans that are less than Rs. 50 crores the banks will themselves workout a resolution within 3 months.
The IBC code, 2016 with all the amendments comprehensively takes care and a resolution and restructuring of NPAs has been clearly codified and the age old practice of debtors in possession has been done away with the creditors in possession norm and the committee of creditors in command to take a time bound decision within 180 days.
The panel suggestion of forming AMC etc., is a clear dilution and is in conflict with the whole IBC process and would totally negate the RBI initiative of scrapping all restructuring schemes and the mandate of even a single day default would trigger the IBC process which was a clear caution to the erring promoters to clear the out standings or face the consequences of insolvency and liquidation. The panel recommendations would definitely defeat the very purpose of IBC process and trying to bring the age old practice of giving a long rope to the borrowers and the likely credit discipline expected from the IBC process would be lost.
The very purpose of IBC process is to see that there should not be any potential loss of productive assets and to avoid any erosion of assets, if there is any deferment in the invocation of IBC process and the very purpose of enacting such all pervasive IBC process would get defeated if the panel recommendations are implemented. Further, whether all the stakeholders, including the RBI have been taken on board for arriving at a new proposal by the panel is yet to be disseminated
The five point formula suggested by the panel would of course be beneficial to the bankers who are staring at a possibility of huge provisioning due to the IBC process and the five point formula would render taking back the whole NPA mess to the pre IBC era which is in nobody’s interest and more so for the economy and the public sector banks in particular.
The formula suggested by the panel is not objective and there is no clarity on the structure of the AMC and the suggestion of backing by Alternative Investment Fund (AIF) are all utopian ideas since who will be willing to invest their funds in AIF?
The whole process seems to set the clock back and the age old practice of ever greening of the assets is being introduced to protect the erring bankers instead of making the IBC process stronger and deeper. Let us not try to dilute the well meaning IBC process and instead should further strengthen the IBC process by plugging the loop holes, if any, in the system.
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